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Comprehensive annual financial report of the University of North Carolina at Chapel Hill

Comprehensive annual financial report of the University of North Carolina at Chapel Hill

the university of north carolina at chapel hill
Comprehensive Annual Financial Report 2007
fiscal year ended June 30, 2007 | Chapel Hill, North Carolina
A Constituent Institution of the University of North Carolina System
and a Component Unit of the State of North Carolina
the university of north carolina at chapel hill
Comprehensive Annual Financial Report 2007
A Constituent Institution of the University of North Carolina System and a Component Unit of the State of North Carolina
Prepared by the Cont rol ler ’s Of f ice
07
June 30, 2007 | Chapel Hi l l , North Carolina
2 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 3
5 Introductory Section
6 Message from the Chancellor
9 Letter of Transmittal
14 Progress and Major Initiatives
22 Board of Trustees
22 Chancellor’s Cabinet
23 Organization Chart
25 Financial Section
26 Report of the Independent Auditor
28 Management’s Discussion and Analysis
BASIC FINANCIAL STATEMENTS
38 Statement of Net Assets
39 Statement of Revenues, Expenses, and Changes in Net Assets
40 Statement of Cash Flows
42 Statement of Financial Position — Component Units
43 Statement of Activities and Changes in Net Assets — Component Units
44 Notes to the Financial Statements
73 Statistical Section
74 Narrative to the Statistical Section
75 Net Assets by Component
76 Changes in Net Assets
79 Changes in Net Assets Adjusted for Inflation
81 Operating Expenses by Function
82 Revenue Base
82 Academic Year Tuition and Required Fees
82 Principal Revenue Payers
83 Long-term Debt
84 Summary of Ratios
90 Schedule of Specific Revenue and General Revenue Bond Coverage
92 Annual Undergraduate Educational Costs per Student
94 Admissions, Enrollment, and Degrees Earned
96 Faculty and Staff
98 Capital Assets
table of contents
4 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 5
i n t r o d u c t o r y
S e c t i o n
6 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
This University is on an incredible roll. That is a great tribute
to our students, faculty, staff, trustees, alumni, parents and
friends, as well as President Bowles and the leaders of the
UNC system and North Carolina.
This fall we enrolled the most academically prepared
first-year class from a record 20,000 applications. Our first
class of Carolina Covenant Scholars became seniors and will
graduate next May. Oliver Smithies, Excellence Professor
of Pathology and Laboratory Medicine, received the Nobel
Prize for work that has fundamentally changed the science
of genetic medicine and laid the foundation for gene
therapy research. The North Carolina General Assembly
created what will become an annual $50 million fund for
cancer research. We dedicated the FedEx Global Education
Center, a symbol of our commitment to global education.
The Carolina First Campaign, now drawing to a close, has
been a spectacular success.
Those are just a few recent major milestones. There is a
lot to celebrate in Chapel Hill because we are making prog-ress
on virtually every priority that we have set for ourselves.
Every part of the University is positioned for the kind of
distinction that we expect at Carolina. Following are a few
details about some recent developments important to the
University’s future.
State Budget Positions Carolina for Success
The North Carolina General Assembly’s most recent budget
may be the best in the University’s history. Our legislators
made a stunning series of allocations including meaningful
salary increases for faculty, a well-deserved raise for our
staff and the creation of the University Cancer Research
Fund that will help put Chapel Hill on the map as one of the
nation’s pre-eminent institutions leading cancer research.
Other highlights included significant recurring funds to sup-port
excellence in the School of Law, capital construction
for genomics and dentistry, and new faculty positions for
the nutrition institute at the Kannapolis research campus.
Enhancing the Learning Environment
This year’s first-year class is again the most academically
qualified in Carolina’s history. The average SAT score was
1302, and 77 percent of our newest students graduated in
the top 10 percent of their high school class. This year’s class
is also more diverse than ever.
Carolina leads the nation in access and affordability.
Through several key policy decisions, Carolina has become
more affordable to a larger number of North Carolinians
than ever before. Kiplinger’s Personal Finance magazine
has concluded six consecutive times that we are the best
academic value in public higher education.
Strengthening Faculty Resources
We have improved how we pay, recruit and retain faculty, this
University’s number one priority. Our goal is to take average
faculty salaries up to the 80th percentile of our peers. We are
roughly at the 50th percentile, and we may reach the 80th
percentile as early as next year. State appropriations helped
slash the gap between current salaries and the 80th percen-tile
from about $21 million last year to $11 million this year
for all tenure and tenure-track faculty. This is real progress.
More competitive salaries are helping recruitment and
retention. Last year we retained 72 percent of faculty who
07 me s sage from the chance l lor
“This University is on an incredible
roll. There is a lot to celebrate in
Chapel Hill because we are making
progress on virtually every priority
that we have set for ourselves.
Every part of the University is
positioned for the kind of distinc-tion
that we expect at Carolina.”
— James moeser
i n t r o d u c t o r y
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 7
received outside offers to whom we made counter offers. We
received almost $1 million from the recruitment and reten-tion
fund created by the Legislature at President Bowles’
request. Those dollars helped attract nine nationally known
scholars and keep six of our strongest faculty who received
outside offers.
Nurturing Research and Creativity
Total grants and contracts grew by 2.9 percent in 2007 to
over $610 million — more than double where we were a
decade ago. These gains came even as funding from the
National Institutes of Health began to shrink after its budget
doubled in the 1990s. Our strategy of investing in big ideas,
pulling together our strongest programs across the campus,
has worked. This approach has paid big dividends in genom-ics,
advanced material science and nanotechnology.
Creating the Margin for Excellence
The Carolina First Campaign, the most successful fund-rais-ing
effort in University history, ends in December 2007 well
over the $2 billion goal. We exceeded that goal last February
when we recorded the largest single pledge in UNC history,
the $50 million commitment to the School of Public Health
by Dennis and Joan Gillings. Our campaign total does not
include the magnificent $100 million gift to the John Motley
Morehead Foundation from the Gordon and Mary Cain
Foundation, nearly doubling its endowment.
The campaign has exceeded its goal of creating 200 new
endowed professorships. For students, our donors have es-tablished
544 undergraduate scholarships and 188 graduate
fellowships. Our endowment has surpassed $2 billion, over
twice what it was seven-and-a-half years ago, a result of gifts
and successful endowment management.
Transforming the
Physical Campus
Our massive building pro-gram
is adding 6 million
square feet to the main
campus. This program is
grounded in core values of
architectural quality and
sustainability. The 2000
Higher Education Bonds
brought $515 million
for new buildings and
renovations, and we more
than kept our promise to
triple this investment by
North Carolina taxpayers.
We have completed nearly
80 percent of those 49
bond projects and expect
to finish in January 2009
within two months of our
original projection — and
on budget.
Chancellor Moeser reads to a third-grade class during an elementary school visit. Through visits
across the state as part of his “Carolina Connects” initiative, the chancellor has been highlighting and
enhancing the University’s focus on education, health and economic development — the issues
identified as the most important by state citizens during listening sessions conducted by the University.
The American Society of Landscape Architects selected
Carolina as one of the most beautifully landscaped spots in the
country. That listing is among the praise affirming the charm of
mighty oaks, majestic quadrangles, brick sidewalks and other
landscaping synonymous with the UNC campus.
8 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
companies, using intellectual capital drawn from faculty
research, can take their very first steps toward full viability.
At Carolina North, we will create strategic private-sector
partnerships that will enable this University to be a more
powerful force in the state’s economy.
Bringing the World to North Carolina
The University has taken some critical steps toward
becoming a great global university, bringing the world to
North Carolina and taking North Carolina to the world.
This fall, we dedicated the FedEx Global Education Center
and convened for the first time the Global Leadership
Circle, a task force of visionary alumni and friends, to help
us develop a strategic vision for global engagement.
Ultimately, achieving our global objectives may be one
of the most important things we do for our state. North
Carolina’s competition is not South Carolina or Georgia.
It is Singapore, China and India. This University must be a
presence in the world so that North Carolina can compete
in the world.
Stepping Down But Not Leaving Carolina
During my State of the University speech in September, I
announced my decision to step down as chancellor on June
30, 2008, the end of the fiscal year. This timing gives the
Board of Trustees the opportunity to complete a search for
my successor. This is not a retirement. After a research leave,
I will return to hold the most exalted title this University can
confer: professor. The state of the University is excellent,
and the time is right for change. Susan and I have come to
love Carolina with every fiber of our being. We understand
the strong pull that Chapel Hill has on the hearts of students
and their families that lasts a lifetime. My focus this year is
on working hard to keep the University’s momentum strong.
Conclusion
2006–2007 was one of the best years ever for this University.
We made remarkable progress toward University priorities.
The North Carolina General Assembly provided exceptional
support, recognizing the role this University and public
higher education plays in advancing the state’s interests. Our
alumni and friends generously supported the Carolina First
Campaign to promote future excellence in Chapel Hill. We
also remain committed to accountability — to our legisla-tors
and the taxpayers — in all that we do.
Sincerely,
James Moeser
The total $2.1 billion building program, including projects
funded by gifts, research grants and our own revenues, is giv-ing
the campus community the physical space in which to ex-cel
in ways we have never been able before. One of America’s
most beautiful campuses is becoming even more beautiful.
Carolina Connects: Serving North Carolina
Carolina has a long and cherished tradition of service to
North Carolina, but we can and must do more. Our ongoing
work on this campus ties in naturally with the University
of North Carolina Tomorrow Commission created by the
Board of Governors and led by President Bowles. We are
continuing our “Carolina Connects” initiative, launched in
2004, to listen to the people, to understand their needs, and
to show what this University, with its statewide mission, is
doing or ought to be doing to serve them. Our focus is on
how this University touches people’s lives in all 100 counties
of North Carolina in the issues that matter most to them —
their health, the education of their children, and the
economic prosperity of their region.
Advancing Carolina North: Our Future
Carolina North will be critical to our ability to help build
the 21st Century economy for North Carolina. Finally, after
years of study and conversation, we are ready to begin. The
Board of Trustees has approved our plan for Carolina North.
Next is formal submission of that plan to the Town of
Chapel Hill. We have identified our first building for
Carolina North — an Innovation Center, where fledgling
Through the successful renovation of Memorial Hall, planning
for the Arts Common and a reorganized management model
for the arts, the University has positioned itself as a performing
arts destination for patrons and an excellent cause for donors
to support. The Memorial Hall renovation was made possible by
the state bond referendum and gifts. Progress on the Arts Com-mon
is now highly visible, with renovations under way for Person
and Gerrard halls, along with Old Playmakers, a National Historic
Landmark, and with construction on a new music building.
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 9
i n t r o d u c t o r y
Introduction
This Comprehensive Annual Financial Report includes the
financial statements for the year ended June 30, 2007, as
well as other useful information that helps ensure the
University’s accountability to the public. Responsibility for
the accuracy of the information and for the completeness
and fairness of its presentation, including all disclosures,
rests with the University’s management. We believe the in-formation
is accurate in all material respects and fairly pres-ents
the University’s financial position, revenues, expenses,
and other changes in net assets. We believe our system of
internal controls is sound and sufficient to disclose material
deficiencies in controls to the auditors and the Audit and
Finance Committee. The Comprehensive Annual Financial
Report includes all disclosures necessary for the reader to
gain a broad understanding of the University’s financial
position and results of operations for the fiscal year ended
June 30, 2007.
The accompanying financial statements present all funds
belonging to the University and its component units. While
the multi-campus University of North Carolina System’s
Board of Governors has ultimate responsibility, the
chancellor, the University’s Board of Trustees, and the Board
of Trustees of the Endowment Fund have both delegated
and statutory responsibilities for financial accountability of
the University’s funds.
The financial reporting entity for the financial statements
is comprised of the University and 11 component units.
Eight of these, although legally separate, are reported as if
they were part of the University. These include The Univer-sity
of North Carolina at Chapel Hill Foundation Invest-ment
Fund, Inc. (Investment Fund), UNC Investment
Fund, LLC (System Fund), UNC Management Company,
Inc. (Management Company), The University of North
Carolina at Chapel Hill Foundation, Inc., The Kenan-Flagler
Business School Foundation, The School of Social Work
Foundation, Inc., The School of Education Foundation, Inc.,
and U.N.C. Law Foundation, Inc.
The Investment Fund supports the University by operating
an investment fund for charitable, non-profit foundations,
associations, trusts, endowments, and funds that are
organized and operated primarily to support the University.
The System Fund was organized to allow the University, the
University of North Carolina and its constituent institutions
(UNC System), affiliated foundations, associations, trusts,
as well as endowments that support the University and the
UNC System to pool their resources and invest collectively
in investment opportunities identified, structured and
arranged by the Management Company. The Investment
Fund contributed and assigned all of its assets to the System
Fund in exchange for membership interest in the System
Fund. At year end, the Investment Fund membership inter-est
was approximately 91.8 percent of the System Fund total
membership interest.
The Management Company is organized and operated
exclusively to support the educational mission of the
University. The Management Company also provides invest-ment
management services to the University, UNC System,
and affiliated tax-exempt organizations. The purpose of the
UNC-CH Foundation, Business School Foundation, Social
Work Foundation, School of Education Foundation, and
U.N.C. Law Foundation is to aid, support, and promote
teaching, research, and service in the various educational,
scientific, scholarly, professional, artistic, and creative
endeavors of the University.
The financial statements of the Investment Fund, System
Fund, Management Company, UNC-CH Foundation, Busi-ness
School Foundation, Social Work Foundation, School
of Education Foundation, and U.N.C. Law Foundation have
been blended with those of the University.
Separate financial statements for three other component
units are reported based on Governmental Accounting Stan-dards
Board (GASB) Statement No. 39. The Medical Foun-dation
of North Carolina, Inc., The Educational Foundation
Scholarship Endowment Trust, and The University of North
Carolina at Chapel Hill Arts and Sciences Foundation, Inc.
are legally separate, non-profit, tax-exempt organizations
December 7, 2007
To Chancellor Moeser, Members of the Board of Trustees,
and Friends of The University of North Carolina at Chapel Hill:
07 l e t t er of transmi t tal
1 0 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
and are reported as discretely presented component units
based on the nature and significance of their relationship to
the University.
Other related foundations and similar non-profit corpora-tions
for which the University is not financially accountable
are not part of the accompanying financial statements. The
University of North Carolina at Chapel Hill is a constituent
institution of the multi-campus University of North Caro-lina
System, which is a component unit of the State of North
Carolina and an integral part of the State’s Comprehensive
Annual Financial Report.
Economic Condition and Outlook
In 2006, the North Carolina economy grew more rapidly
than the national average for the second consecutive year.
This used to be a normal trend except during national reces-sions,
but the state’s growth pace trailed the national average
from 1999–2004.
According to a June 7, 2007, release from the Bureau of
Economic Analysis (BEA) of the U.S. Department of
Commerce, the state’s real gross domestic product (“real
GDP,” the total value of all the goods and services produced
within North Carolina after adjusting for price changes) was
a record $323.2 billion in 2006, an increase of 4.2 percent
from 2005. This was 2.9 percent of the U.S. total of $11.3
trillion, an increase of 3.4 percent from 2005. North
Carolina’s output ranked 11th among all states. It was just
below Georgia’s $331.1 billion and just above Virginia’s
$318.7 billion.
Per capita real GDP was a record $36,489 in North
Carolina in 2006. This ranked 20th in the U.S. between
Texas at $36,920 and Nebraska at $36,441. It was 97 percent
of the national average of $37,714. Delaware was first at
$59,288 and Mississippi was last at $24,062. South Carolina
was 45th at $29,642.
On September 20, 2007, the BEA reported that personal
income in North Carolina in the second quarter was
running at a record seasonally adjusted annual rate of
$304.7 billion. That was an increase of 7.3 percent from the
second quarter of 2006. This was above the national average
increase of 6.4 percent for the same period.
The U.S. Census Bureau estimated the total population of
North Carolina at 8.9 million people in 2006. That was an
increase of 10.1 percent since 2000, well above the national
average of 6.4 percent.
Non-farm payroll employment has finally returned to
strong growth after being below the January 2001 peak of
more than 3.9 million jobs until November 2005. According
to a Bureau of Labor Statistics (BLS) release of September
25, 2007, there were over 4 million such jobs in North
Carolina in August 2007. That was an increase of 66,700
jobs or 1.65 percent from a year earlier.
Total employment, which includes agricultural workers
and the self-employed, reached 4.3 million in August. That
was up 32,700 people, or 0.8 percent from a year earlier.
All of these people employed and the record levels of
income have been reflected in the North Carolina budget.
After a surplus of $1.1 billion in fiscal 2006, the increase in
revenues to $19.5 billion in fiscal 2007 resulted in a budget
surplus of $1.3 billion.
All the concern about subprime mortgage defaults and
rising foreclosures in the national media are not very
relevant to North Carolina. We have much less expensive
housing than the national average and a far higher pro-portion
of people paying their mortgages as agreed. The
declines in interest rates should help North Carolina again
grow faster than the national average in calendar year 2008.
Progress and Major Initiatives
Carolina’s progress, priorities, and major initiatives during
fiscal 2006–2007 reflected the University’s vision of
becoming the nation’s leading public university. Following
this letter are recent highlights.
Financial Information
INTERNAL CONTROL STRUCTURE
The University’s Finance and Administration Division
establishes and maintains an effective system of internal
control. One objective of an internal control structure is to
provide management with reasonable, although not abso-lute,
assurance that assets are safeguarded against loss from
unauthorized use or disposition. Another objective is to
ensure that transactions are executed in accordance with ap-propriate
authorization and recorded properly in the finan-cial
records to permit the preparation of financial statements
in accordance with generally accepted accounting principles.
Organizational structure, policies, and procedures have
been established to safeguard assets, ensure the reliability of
accounting data, promote efficient operations, and ensure
compliance with established governmental laws, regulations
and policies, University policies, and other requirements of
sponsors to whom the University is accountable.
As a recipient of federal financial awards, the University
is responsible for ensuring compliance with all applicable
laws and regulations. A combination of state and University
policies and procedures, integrated with the University’s
system of internal controls, provides for this compliance.
As an integral part of the State of North Carolina’s Single
Audit, the University is subject to an annual examination
by the Office of the State Auditor of its federal financial as-sistance
programs and federal cost-reimbursement contracts
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 1 1
in accordance with U.S. Office of Management and Budget
Circular A-133, Audits of State and Local Governments,
and Non-Profit Organizations.
The University determined a course of action as part of
higher education’s response to the Sarbanes-Oxley Act and
has implemented practices to enhance the internal con-trol
structure. The University’s focused effort on financial
controls provides a more proactive and broader approach
in identifying and resolving potential limitations on sound
internal control through a self-assessment process, devel-opment
of a professional code of ethics, targeted campus
training sessions, special reviews, improved documentation
of internal controls, and timely and useful responses to
questions from campus units. A financial controls manager
leads efforts to strengthen and maintain sound internal
controls. The Audit and Finance Committee of the Board of
Trustees maintains an Audit Committee charter consistent
with higher education standards.
BUDGETARY CONTROLS
The University is responsible for controlling its budget and
using the funds to fulfill its educational, research, and public
service missions. It is also responsible for planning, develop-ing,
and controlling budgets and expenditures within autho-rized
allocations in accordance with University, state, and
federal policies and procedures. The University maintains
budgetary controls to ensure compliance with provisions
embodied in the annual appropriated budget approved
by the North Carolina General Assembly, and as further
directed by the Board of Governors. Project-length financial
plans are adopted for capital projects.
After the budget has been approved by the chancellor
and the Board of Governors, the University follows an
established system of budgetary controls. Finance and
Administration issues periodic interim budget statements
to department heads to guide them in managing their
budget allocations. Monthly financial reports are provided
on each fund to individual managers responsible for the
fund. Financial reports are also provided to the state. When
actual conditions require changes to the budget, revisions
are prepared and these revisions are appropriately approved
and communicated to those affected. Changes to the budget
are approved at the University level and/or the state level
as required. Based on the state’s management flexibility
legislation, the University has received delegated authority
for designated budget changes. The University maintains
an encumbrance accounting system as another method to
ensure that imposed expenditure constraints are observed.
DEBT ADMINISTRATION
To ensure the appropriate mix of funding sources is
utilized, the University established a debt policy, which is
continuously used by management as a tool to evaluate
the University’s financing needs for its capital investments
within the framework of portfolio management practices.
To fulfill its mission, the University makes capital invest-ments,
driving capital decisions that affect the University’s
credit. Appropriate financial leverage serves a useful role
and should be considered a long-term component of the
University’s balance sheet. Just as investments represent an
integral component of the University’s assets, debt is viewed
to be a continuing component of the University’s liabilities.
Debt, especially tax-exempt debt, provides a low-cost source
of capital for the University to fund capital investments and
achieve its mission and strategic objectives.
The debt strategies, combined with management
judgment, provide the framework by which decisions will
be made regarding the use and management of debt. The
objectives of the debt policy are:
n Identify projects eligible for debt financing. Using
debt to fund mission-critical projects will ensure that debt
capacity is optimally used to fulfill Carolina’s mission.
Projects that relate to the core mission will be given priority
for debt financing; projects with associated revenues will
receive priority consideration as well.
n Maintain Carolina’s favorable access to capital.
Management’s determination of the timing of capital proj-ects
will not be compromised by the University’s access to
capital sources, including debt. Management will use and
issue debt to ensure timely access to capital.
n Limit risk of University debt portfolio. The University
will manage debt on a portfolio basis. The University’s con-tinuing
objective to achieve the lowest cost of capital will be
balanced with the goal of limiting exposure to market shifts.
n Manage the University’s credit rating to maintain the
highest acceptable credit. This practice will permit the Uni-versity
to continue to issue debt and finance capital projects at
favorable interest rates while meeting strategic objectives. The
University will limit its overall debt to a level that will main-tain
an acceptable credit rating with the bond rating agencies.
In meeting these objectives, the University has adopted
strategies and procedures for the management of its debt.
These strategies include the following:
n Mission-based capital planning. Provide framework
with a link to mission to evaluate and prioritize debt-eligible
projects.
n Core ratios. Adopt a set of core ratios to guide capital
planning and ensure central oversight of University-wide
leverage levels.
n Financial instruments. Provide management with
appropriate debt vehicles based on borrowing needs.
n Asset/Liability management. Manage outstanding
debt and future debt-financing needs within the framework
of sound portfolio management practices.
1 2 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
The University has $785,306,805 of outstanding long-term
bonds and $192,414,000 of commercial paper at June
30, 2007. The bonds were issued to finance the construction
and/or renovation of many campus facilities including
essential new research buildings, major new cultural facilities
that will benefit the local community and state, undergradu-ate
residence halls, student family housing, parking facilities,
and utilities infrastructure. Principal and interest for the
bonds are payable from the general revenues of the Univer-sity
— excluding state appropriations, tuition, restricted
gifts and restricted income from endowment investments —
and net revenues generated by the operations of the debt-financed
facilities.
The UNC-CH Foundation, which is part of the Univer-sity’s
financial reporting entity, also adheres to a debt policy
that maximizes the utility of the foundation’s financial
resources to continue to provide current and future support
to the University.
CASH MANAGEMENT
The cash management plan of the University provides guid-ance
to ensure control and deposit of receipts, appropriate
management of disbursements, and investment of funds to
maximize earnings on the investment of cash and minimize
non-productive cash balances. State law requires that state-appropriated
funds be deposited and invested with the State
Treasurer with investment earnings accruing to the state.
Other resources, such as gifts, contract and grant awards,
auxiliary revenues, and student activity fees are not
appropriated by the state. These funds, except for fees
from services of health care clinics, must be deposited and
invested with the State Treasurer with investment earnings
accruing to the University. Endowment, debt service, fees
from services of health care clinics, and other designated
funds are invested by the University in accordance with its
investment policies.
The University administers a short-term investment pool
for funds not required to be on deposit with the State Trea-surer.
The investment pool is administered in conjunction
with cash receipts and disbursing requirements to minimize
idle cash and to generate current income without loss of
capital at a rate of return no less than the State Treasurer.
Earnings are distributed to participating funds.
The objective in managing disbursements is to maintain
funds in interest-bearing accounts for the longest appropri-ate
period of time while ensuring that payments for goods
and services are made timely. Disbursement cycles are
established to coincide with this objective. The University
uses the state’s cash management control system to improve
cash flow by electronically recording cash receipts and
disbursements for funds deposited with the State Treasurer.
Other electronic processes have been developed for the
receipt and disbursement functions to provide efficient and
effective processes.
RISK MANAGEMENT
Risk has traditionally been viewed as something to be
avoided or eliminated with only a negative outcome.
Increasingly in today’s environment, there is greater aware-ness
that responsible risk taking leads to a competitive
advantage and can maximize stakeholder value.
To optimize the benefits of risk and minimize their costs,
the University has taken a more enterprise-wide approach
to its risk management programs by holistically addressing
its operational, financial, compliance, strategic and reputa-tion
risks. This enterprise risk management ensures that
decisions that trade value and risk are made on an informed
basis and are aligned with our risk tolerance and strategy.
The risks we face constantly change so our strategies must
remain fluid. This ongoing process allows us to prioritize
and efficiently use our risk management resources.
Included within this enterprise risk management frame-work
is our responsibility to mitigate any business
interruption that adversely affects our education, research
and public service missions. An effective campus-wide
Business Continuity Plan is central to this responsibility.
The University employs a full-time business continuity
officer position to lead this campus-wide planning process
and develop a more formal program.
Insurable risks are addressed in several ways, including
participation in various state-administered risk pools,
purchase of commercial insurance and self retention of
certain risks. Refer to Note 15 of the Notes to the Financial
Statements for more detailed information concerning the
University’s insurance programs.
Other Information
AUDITS
State law, federal guidelines, and certain bond covenants
require that the University’s accounting and financial
records be audited by the Office of the State Auditor each
year. The University’s internal auditors also perform fiscal,
compliance, and performance audits. The reports resulting
from these audits are shared with University management.
Internal and external audit reports are provided to the Audit
and Finance Committee of the Board of Trustees.
The audit of the University’s federal financial assistance
programs is performed by the Office of the State Auditor
in conjunction with the statewide Single Audit. The
accounting and financial records of The University of North
Carolina at Chapel Hill Foundation Investment Fund, Inc.,
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 1 3
The University of North Carolina at Chapel Hill Founda-tion,
Inc., UNC Investment Fund, LLC, UNC Manage-ment
Company, Inc., The Kenan-Flagler Business School
Foundation, The School of Social Work Foundation, Inc.,
The School of Education Foundation, Inc., The U.N.C.
Law Foundation, Inc., the University of North Carolina at
Chapel Hill Arts and Sciences Foundation, Inc., The Medi-cal
Foundation of North Carolina, Inc., the Educational
Foundation Scholarship Endowment Trust, WUNC Radio,
and the Athletic Department are each audited by a public
accounting firm in addition to the State Auditor review. All
audit reports are available for public inspection.
CERTIFICATE OF ACHIEVEMENT
The Government Finance Officers Association of the
United States and Canada (GFOA) awarded a Certificate of
Achievement for Excellence in Financial Reporting to the
University for its comprehensive annual financial report for
the fiscal year ended June 30, 2006. This was the 12th con-secutive
year that the University has been honored with this
prestigious award. To receive a certificate of achievement,
a government unit must publish an easily readable and ef-ficiently
organized comprehensive annual financial report.
This report must satisfy both generally accepted accounting
principles and applicable legal requirements.
A Certificate of Achievement is valid for one year. We
believe our current comprehensive annual financial report
continues to meet the Certificate of Achievement Program’s
requirements and we are submitting it to the GFOA to
determine its eligibility for another certificate.
ACKNOWLEDGMENTS
Preparation of this Comprehensive Annual Financial Report
in a timely manner would not have been possible without
the coordinated efforts of the University community, with
special assistance from the Chancellor’s Office, the Office of
the Executive Vice Chancellor and Provost, Research and
Economic Development, Student Affairs, Information Tech-nology
Services, University Advancement, University Rela-tions,
Institutional Research, the Office of Scholarships and
Student Aid, the Department of Athletics, and Dr. James F.
Smith, Adjunct Professor of Business Administration in the
Kenan-Flagler Business School. In addition, the Office of
the State Auditor provided invaluable assistance.
Richard L. Man
Vice Chancellor for Finance and Administration
The University of North Carolina at Chapel Hill has
received the award for reporting excellence for the
past twelve years.
1 4 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
Carolina keeps making major progress
with key priorities in aspiring to
become the nation’s leading public
university. The first class of Carolina
Covenant Scholars is poised to gradu-ate
in May 2008. Students, faculty
and staff are achieving excellence
through teaching, research and public
service. Faculty research funding
continues to rise. The physical campus
is undergoing an unprecedented
transformation. The generosity of
alumni and friends put the Carolina
First Campaign over its $2 billion
goal 10 months ahead of schedule.
And the University is demonstrating
outstanding leadership in American
higher education and life-changing
public service to the people of
North Carolina.
Following are a sampling of recent
highlights demonstrating significant
progress across several areas of the
University during fiscal 2006–2007.
Carolina
making major
acomplishments
fiscal 2006–2007
07 progre s s and major ini t iat ive s
i n t r o d u c t o r y
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 1 5
Carolina Covenant
Helping Deserving Low-Income Students
Carolina offers talented students the opportunity to learn in
a high-quality academic environment. Through the Carolina
Covenant and an excellent overall financial aid program,
the University is making college possible for qualified
students regardless of their financial means. The University’s
policies and practices protect access and affordability —
core values at Carolina that have long benefited North
Carolina and its citizens.
Under the Carolina Covenant, announced in 2003, quali-fied
low-income students admitted under regular admissions
standards become eligible to graduate debt-free.
This concept began a movement in U.S. higher education.
Other universities and at least two states have begun about
40 similar initiatives. These campuses include Brown,
Harvard, MIT and Stanford, as well as Michigan and Virginia.
Many of these programs, like Carolina’s, respond to rapidly
changing demographics and social needs, such as rising high
school dropout and poverty rates.
The University will graduate its first class of Carolina
Covenant Scholars next May. To date, about 1,400 students
have benefited from the program, which includes a
mentoring component featuring volunteer faculty and older
Covenant students.
Eligible Covenant students agree to work on campus 10
to 12 hours weekly in a federal work-study job, and UNC
meets their remaining needs through federal, state, Uni-versity
and other privately funded grants and scholarships.
Beginning in fall 2005, students and their families had to
be at or below 200 percent of the federal poverty level to be
eligible for the program. That currently covers a family of
four with an annual income of about $40,000.
In fall 2006, the University hosted a conference, “The
Politics of Inclusion: Higher Education at a Crossroads,”
seeking national solutions to the complex issues surrounding
access and affordability. More than 150 state and federal
policymakers, economists, researchers, foundation and
business leaders and educators from across the country
exchanged ideas intended to help shape national policy and
practice. The Carolina Covenant has been a springboard for
two innovative programs funded by the Jack Kent Cooke
Foundation to help low-income students in community
college and high school settings. North Carolinians are
directly benefiting from both efforts.
The Honors Program provides students with a rich academic
experience through special seminars and undergraduate course
sections. The Carolina First Campaign recently received a $5
million gift creating five endowed professorships in the College
of Arts and Sciences, helping to expand the Honors Program.
The Carolina Covenant,
a first for a major public
university, provides a
debt-free education for
qualified low-income
students. To date, about
1,400 students have
benefitted from the
program, which sparked
a national movement in
U.S. higher education.
1 6 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
Carolina First
Surpasing $2 Bilion Ahead of Schedule
The Carolina First Campaign is a comprehensive, multi-year
private fund-raising campaign — the largest and most suc-cessful
in the University’s history — to support the vision
of Carolina becoming the nation’s leading public university.
Each year, private funding and investment income provide
some 20 percent of the University’s budget — creating
Carolina’s margin of excellence.
As of September 2007, Carolina First had raised more
than $2.23 billion, surpassing its final $2 billion goal 10
months early. Alumni and friends have exceeded the goal
of creating 200 new distinguished professorships, as well as
544 new undergraduate scholarships and 188 new graduate
student fellowships (toward a goal of 1,000). The push for
student scholarships includes a new emphasis on merit-based
awards. The campaign, which ends in December 2007
and is led by volunteer alumni, also supports research, stra-tegic
initiatives, facilities and the University’s endowment.
As the campaign winds down, one goal is to meet a special
$100 million target set for faculty resources last February.
The campaign has consistently exceeded projections,
raising a record $241.2 million in private gifts during fiscal
2006. That was the first time that the University had raised
more than $200 million in a single year. The University has
had three consecutive years of record-setting support,
topping $192.5 million in 2005 and $192 million in 2004.
A $50 million commitment from Dennis and Joan
Gillings to support the School of Public Health put Carolina
First over the $2 billion goal in February 2007. That marked
the single largest commitment in University history. Dennis
Gillings is the chairman and chief executive officer of Quin-tiles
Transnational Corp., a Research Triangle Park-based
pharmaceutical services company. Joan Gillings has had
careers in public health and commercial real estate.
Other 2007 highlights included a $21.3 million grant
from the Bill & Melinda Gates Foundation to develop effec-tive,
inexpensive drugs to treat late-stage African sleeping
sickness and visceral leishmaniasis.
Commitments supporting students included a donation
from High Point businessman Earl N. “Phil” Phillips Jr. to
create study-abroad-in-Asia scholarships for up to 50 under-graduates
annually in the College of Arts and Sciences, as
well as $4 million from the William R. Kenan Jr. Charitable
Trust to create four scholarships for undergraduate music
students each year in the college.
Newly graduated Carolina students take in the excitement
of the traditional Commencement ceremony in Kenan Stadium.
The University awards nearly 7,000 bachelor’s, master’s,
doctoral and professional degrees each year.
From left, Paul Fulton, Chancellor Moeser, Joan Gillings, Dennis
Gillings and Charlie Shaffer applaud after the cutting of a cer-emonial
cake that marked passing the Carolina First Campaign’s
$2 billion goal in February 2007. Joan and Dennis Gillings com-mitted
$50 million — the single largest pledge in the University’s
history — to the School of Public Health. Fulton, a trustee, and
Shaffer are two of the volunteer co-chairs for the campaign.
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 1 7
And, in a move to help more high school students realize
their ambition to attend college, Carolina was one of 10
higher education institutions joining the Jack Kent Cooke
Foundation in a $10 million partnership to create advising
programs to help low-income students enroll in college. The
network of programs created through the partnership will be
headquartered at UNC-Chapel Hill, which will receive $1
million over four years to create the Carolina College Advis-ing
Corps. This effort is placing recent Carolina graduates as
college advisers in 18 partner high schools across the state.
Along with creating music scholarships, the Kenan trust
gave $4 million to support a new College of Arts and Sci-ences
music building now under construction on Columbia
Street between Hanes Art Building and Abernethy Hall.
Commitments to building projects also included $5 million
to the college from alumnus Max Carrol Chapman Jr., a
Wall Street businessman, to help fund a new building in the
Carolina Physical Science Complex.
Commitments in 2007 helped the University create
18 endowed professorships, as well as 114 undergraduate
scholarships and graduate fellowships.
Campus Master Plan
Guiding Unprecedented Growth
Today, the campus
is undergoing an
unprecedented
physical transforma-tion
made possible
in part by North
Carolinians’ over-whelming
approval
of the $3.1 billion
bond referendum
for higher educa-tion.
The referen-dum,
approved in
November 2000,
was the nation’s larg-est
higher education bond package.
The bonds have meant more than $515 million for reno-vations
and new buildings so 21st century students at Caro-lina
can learn in a 21st century environment. Also guided by
a visionary campus master plan for growth now rapidly com-ing
to life, the University is investing funds from non-state
sources, including private gifts and overhead receipts from
faculty research grants, for other buildings essential to excel-lence.
The resulting capital campaign exceeding $2.1 billion
is among the largest at any major American university.
As of September 2007, the University had completed 72
projects, or 37 percent of the total capital program since
2000. Another 38 projects were under construction and 55
other projects were in design.
The Higher Education Bond Referendum portion of the
building program includes 49 projects. Thirty-six have been
completed, 12 are under construction and one is in design.
This program is scheduled to be completed in January 2009 —
within two months of the original schedule.
Recently completed projects include:
W. Lowry and Susan S. Caudill Laboratories and Max
C. Chapman Jr. Hall — the first phase of the Carolina
Physical Science Complex. The $205 million complex is the
largest construction project in the University’s history. It is
replacing outdated, deteriorating buildings with state-of-the-art
facilities. The goal is to provide an innovative learning
atmosphere for students and open the door for integrated
collaboration among Carolina’s world-renowned scientists.
FedEx Global Education Center, which brings several key
international activities under one roof and advances a major
academic priority. The building is creating a vibrant hub of
At left, beams stand out in the foreground as workers take the
next steps toward making progress with a new construction
project. At right, students enjoy new gathering spaces to study
and relax in the FedEx Global Education Center, one of the
newest buildings to open on campus. The building program is
adding 6 million square feet to the main campus.
1 8 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
international studies, academic services, research, public
service and cultural exchange. It was completed in spring
2007 and was dedicated Oct. 12, 2007, University Day.
Projects under construction include:
North Carolina Cancer Hospital, which will become a
world-class hospital for cancer patients and their families
from North Carolina and beyond. The new hospital, part of
the UNC Health Care System, will bring complete cancer
care for patients and research facilities into one building
and serve as the new clinical home for the UNC Lineberger
Comprehensive Cancer Center, one of only 38 such National
Cancer Institute-designated centers in the United States.
The North Carolina General Assembly approved $180
million in funding for the new hospital to replace a facility
originally built in the 1950s as a tuberculosis sanatorium.
Tentatively scheduled to open in late 2009, the hospital will
provide North Carolinians with complete clinical cancer
care and research facilities in one building.
Genetic Medicine Building, which will become one of
the largest facilities on campus. The building represents a
cooperative effort between the schools of pharmacy and
medicine to offer unique opportunities for interdisciplinary
collaboration. Among these are projects to develop novel
approaches to deliver gene therapy. The seven-story
structure will contain five laboratory floors and will house
researchers from pharmacy and three medical school
departments: pharmacology, genetics, and biochemistry
and biophysics.
Using sustainable practices is a key component of the
capital program. For example, the School of Nursing
achieved Leadership in Energy and Envi-ronmental
Design (LEED) certification
from the U.S. Green Building Council
in 2007. The school’s Carrington Hall
addition was the first project in the UNC
system to register for LEED certification.
Features include a “green” roof surround-ing
a small patio where plantings capture
70 percent of the stormwater.
Faculty Research
Finding Solutions
Faculty attract federal and private research
dollars to support efforts to cure diseases,
improve technology, bring innovation to
industries such as biotechnology and spin
off new businesses that create jobs and
diversify North Carolina’s economy.
Total research grants and contracts
rose by almost 3 percent in fiscal 2007 to
exceed $610 million — more than double
the level from a decade ago.
Cancer is a major area of emphasis en-hanced
with the construction of the North
Carolina Cancer Hospital, which will
provide a clinical home for the Lineberger
Comprehensive Cancer Center. The North
Carolina General Assembly recently created
a new fund for cancer research for the Uni-versity
at a permanent level of $50 million
annually. Last year, Chancellor Moeser set
a goal for the University to reach $1 billion
in sponsored research by 2015.
In October 2007, Oliver Smithies,
Excellence Professor of Pathology and
Carolina’s recent successes include nurturing growth in faculty research
funding — by almost 3 percent in fiscal 2007 to exceed $610 million. Faculty
attract federal and private research dollars to support efforts to cure diseases,
improve technology, bring innovation to industries such as biotechnology and
spin off new businesses that create jobs and diversify the state’s economy.
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 1 9
Laboratory Medicine, was
named a co-recipient of this
year’s Nobel Prize in Physiol-ogy
or Medicine. Smithies
was cited for his role in
introducing gene modifica-tions
in mice using embry-onic
stem cells. According
to the Nobel committee,
“gene targeting in mice
has pervaded all fields of
biomedicine. Its impact on
the understanding of gene
function and its benefits to
mankind will continue to
increase over many years to
come.” Smithies is the first
full-time UNC faculty mem-ber
to win a Nobel Prize.
Other ongoing research initiatives at Carolina include
efforts to tackle challenges such as genome sciences, which
is unraveling the mysteries of DNA and the human genome.
Carolina has committed at least $245 million over a decade
to be at the forefront of the genomics revolution. Since
2000, the University has maintained a strategy of targeted
investment in “big idea” research themes, knitting together
existing strengths in various areas to create broad, interdisci-plinary
new thrusts.
Recent examples of key new interdisciplinary
initiatives include:
n The “Roadmap for Medical Research” initiative,
intended to focus future National Institutes of Health
funding in 21 broad areas of concentration. The University
established a Roadmap Office to position the campus for
the highest level of success with this NIH initiative, which
encourages researchers to attack difficult problems using
interdisciplinary collaboration and sophisticated computa-tional
techniques to create quick translations to patient care.
As a result of the work of the Roadmap Office and the
strength of Carolina’s faculty and their interdisciplinary
work, Chapel Hill received 11 grants in the 2006 competi-tion,
the highest number to date. Carolina’s efforts with
this program are among the most successful in the country.
Previous projects funded include the Carolina Center of
Nanotechnology Excellence, which marries expertise in
nanotechnology with patient research at the Lineberger
Comprehensive Cancer Center.
The Renaissance Computing Institute (RENCI) addresses
problems spanning the sciences and engineering, the arts,
the humanities and commerce. RENCI brings together
technologies and communities to respond to disasters —
from storm surges, hurricanes and floods in eastern North
Carolina to landslides in the mountains — that require
responses no one organization can address alone. RENCI
was established in partnership with Duke and N.C.
State universities. Its work fosters collaborations across
the state, including with other UNC system campuses and
state government.
n The Carolina Entrepreneurial Initiative, funded
with a five-year, $3.5 million grant from the Ewing Marion
Kauffman Foundation is being matched two-to-one by the
University. Carolina is one of seven Kauffman Foundation-designated
“Entrepreneurial Universities,” chosen through
a national competition. UNC is deploying new programs to
create a surge of entrepreneurship among students, faculty
The Renaissance Computing Institute is testing the unmanned
aerial vehicle shown below. Equipped with a digital camera
and programmed to receive transmissions from low-power
sensors in remote locations, the vehicle can gather data from
areas too dangerous or remote to be reached by humans.
It can compile sensor data to pinpoint the location of flood
damage or mudslides.
Oliver Smithies,
Excellence Professor
of Pathology in the
School of Medicine,
became the first full-time
Carolina faculty
member to win a No-bel
Prize in 2007. He
was one of three re-cipients
of the Nobel
Prize in Physiology or
Medicine for his role
in introducing gene
modifications in
mice using embry-onic
stem cells. The
resulting techniques
led to Smithies’ lab
producing the first
animal model of
cystic fibrosis.
2 0 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
and staff, including a new minor in entrepreneurship in the
College of Arts and Sciences. The program is led by a team
managed by the Frank Hawkins Kenan Institute of
Private Enterprise.
Data that reflect the current economic impact of
technological developments resulting from faculty research
include the number of patents, spin-off companies, jobs
and licensed technology. In 2006, UNC was awarded 21
patents; started five new companies, bringing the total to 36;
licensed 43 inventions; and received about $2.2 million in
revenue generated by licensed technology.
Spin-off companies resulting from UNC discoveries
include Liquidia Technologies, a 2004 start-up to
commercialize inventions from the laboratories of Joe
DeSimone, William R. Kenan Jr. distinguished professor of
chemistry and chemical engineering at Carolina and N.C.
State. Liquidia has used a silicon wafer to create molds for
making nanoparticles for drug delivery. Possibilities include
developing custom nanoparticles for targeted delivery of
anticancer drugs. Liquidia’s technology also helped the
University land one of eight NIH “nanocancer” grants.
Carolina North
Planning for Future Growth
The University’s future contributions to the North Carolina
economy one day will include Carolina North, to be built
on about 900 acres of UNC-owned land less than two
miles from main campus. Carolina North is envisioned as a
vibrant, compact, mixed-use academic campus.
The primary driver for Carolina North is the University’s
mission — education, research, public service — and a
responsibility to help meet the state’s economic development
needs. Carolina North will be a “growth campus,” one that
can provide space for University activities that no longer fit
on the main campus and to develop partnerships with the
private sector to accelerate economic development.
An ecological assessment is helping guide the University’s
efforts toward sustainability principles and goals at Carolina
North. Other input includes a report from the Leadership
Advisory Committee, which included community represen-tatives,
that made recommendations for guiding principles
for development. That report guided a series
of draft concept plans presented to the
local community in meetings from March to
September 2007.
The University’s Board of Trustees
approved a final draft concept plan in
September 2007, setting the stage for the
University’s submission of a plan for
Carolina North to local governments.
The University has identified the first
building for Carolina North — an Innovation
Center, where fledgling companies, using
intellectual capital drawn from faculty
research, can take their very first steps toward
full viability.
The 85,000-square-foot Innovation
Center will provide much-needed space and
resources for researchers who have intellectual
property with commercial potential to turn those ideas into
products and businesses.
The Innovation Center will be built as a partnership with
a private developer, Alexandria Real Estate Equities of Pasa-dena,
California, which specializes in this type of business
accelerator. Although the center will be located on Uni-versity-
owned land at Carolina North, the building will be
privately owned and will pay taxes to the local community.
Academic Reputation
Highlighting Quality
Several national publications regularly publish rankings
that listed Carolina prominently in categories ranging from
academic quality to affordability to international presence.
Recent highlights include:
n 1st among the 100 best U.S. public colleges and
universities that offer the best combination of top-flight
academics and affordable costs as ranked by Kiplinger’s Per-sonal
Finance magazine. 1st for six consecutive times since
Kiplinger’s began these periodic surveys in 1998. Kiplinger’s
analysis stressed academic quality, as well as cost and financial
aid offerings, and cited the success of the Carolina Covenant
program, which provides a debt-free education to qualified
Students study amid the beauty of the Carolina campus. The Class of 2011 —
3,895 students — comes from 94 North Carolina counties, 45 states and 22
countries. More than 87 percent graduated with a grade-point average of 4.0
or higher. Nearly 77 percent were in the top 10 percent of their high school
class, 40 percent were among the top 10 students and 12 percent were
valedictorians or salutatorians. The average SA T score was 1302.
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 2 1
low-income students. Only school in Kiplinger’s survey that
meets 100 percent of each student’s financial need.
n 5th best public university in U.S. News & World
Report’s 2008 “Best Colleges” guidebook for the seventh
consecutive year. 1st among public campuses for the third
consecutive year. 9th overall in “Great Schools, Great
Prices,” based on academic quality and the net cost of
attendance for a student who received the average level of
need-based financial aid.
n One of 6 public universities ranking in the top 25 for
all nine measures used in “The Top American Research
Universities,” produced in 2007 by The Center for Measur-ing
University Performance at Arizona State University.
Evaluates top research universities with at least $20 million
in annual federal research funding using quantitative
measures such as endowment assets, private giving, faculty
awards, doctorates granted and SAT/ACT range. In the
seven years of these studies, UNC is one of four universities
(with Berkeley, UCLA and Michigan) in the top 25 on all
nine measures.
n Among 25 “New Ivy” campuses in the 2007 Kaplan/
Newsweek “How to Get into College Guide.” Includes
schools with first-rate academic programs fueling their rise
in national stature. Based on admissions statistics and in-terviews
with administrators, students, faculty and alumni.
Reports Newsweek: “If a moviemaker needs an idyllic
setting for a film about college life, Chapel Hill might just
take the prize.”
n A “best value” among 81 schools chosen for
“America’s Best Value Colleges, 2006 Edition” by The
Princeton Review/Random House for outstanding academ-ics,
relatively low costs and generous financial aid packages.
2nd appearance in a row for UNC.
n 1st among major U.S. universities — for the 6th
time in 8 years — in the percentage of African-American
students in the first-year class, according to The Journal
of Blacks in Higher Education. The 470 black first-year
students enrolled at UNC in fall 2006 marked a 13 percent
increase from 2005. At 12.3 percent of the total class, this
was the second-highest percentage reported by the Journal
since its annual survey began in 1993.
n 2nd among top public research universities recording
the highest rate of undergraduates studying abroad in
2004-2005, according to a report published by the Institute
of International Education.
n 8th among U.S. universities for the number of alumni
volunteering for the Peace Corps in 2006 — up from 11th
the previous year. Seventy-seven UNC graduates are rep-resenting
the United States abroad. Since the inception of
the Peace Corps, 966 alumni have joined its ranks, making
UNC the 25th largest producer of volunteers all time.
n Degree programs or specialty areas from several
schools and the College of Arts and Sciences appeared prom-inently
in the 2008 U.S. News and World Report’s “Amer-ica’s
Best Graduate Schools” issue. Highlights included:
School of Public Health, tied for 2nd, master’s and doctoral
programs; School of Medicine, 2nd overall for primary care,
20th for research; nursing master’s programs in the School of
Nursing and School of Public Health, 5th and tied for 12th,
respectively; and Kenan-Flagler Business School’s master of
business administration degree program, tied for 18th.
n Kenan-Flagler Business School ranked 15th in Busi-nessWeek
magazine’s list of the best undergraduate business
programs. That was 5th best among programs at public
universities and included ratings of 7th for academic quality,
10th for student satisfaction and straight “A+” grades in
teaching quality, facilities and services, and job placement.
n Kenan-Flagler appeared in several other best MBA pro-gram
lists: The Wall Street Journal, 8th based on a survey of
corporate recruiters; BusinessWeek (17th); Forbes magazine
(14th); The Princeton Review and Forbes.com, 1st for foster-ing
entrepreneurship campuswide; BusinessWeek, executive
MBA program 5th; Financial Times, executive education
programs 12th in the United States and 21st in the world.
In 2006,
the Univer-sity
set new
goals for
four- and
six-year
graduation
rates. Those
goals were
to match the
six-year rates
of Berkeley,
UCLA and
Michigan by
2010. Last
year, theirs
stood at
87 percent
compared
to UNC’s
84 percent.
The four-year
goal is
to improve
from 71
percent to
75 percent
by 2010. This
year, that
rate rose
by nearly 2
percentage
points to
73 percent.
2 2 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
i n t r o d u c t o r y
board of t r u s t e e s
chancelo r ’ s c a binet
Nelson Schwab III
Chair, Charlotte, NC
Jean Almand Kitchin
Vice Chair, Scotland Neck, NC
Russell M. Carter
Secretary, Wilmington, NC
Timothy B. Burnett
Greensboro, NC
James C. Moeser
Chancellor
Richard A. Baddour
Director of Athletics
Nancy K. Davis
Associate Vice Chancellor
for University Relations
Douglas S. Dibbert
President, General Alumni
Association
Archie W. Ervin
Associate Provost for Diversity
and Multicultural Affairs
Kevin M. FitzGerald
Special Assistant to the Chancellor
for State Government Relations
Bernadette Gray-Little
Executive Vice Chancellor
and Provost
John G. B. Ellison, Jr.
Greensboro, NC
Paul Fulton, Jr.
Winston-Salem, NC
Barbara R. Hyde
Memphis, TN
Karol V. Mason
Atlanta, GA
Roger L. Perry, Sr.
Chapel Hill, NC
A. Donald Stallings
Rocky Mount, NC
Richard T. Williams
Charlotte, NC
Robert W. Winston III
Raleigh, NC
Eve M. Carson
Ex-Officio, Chapel Hill, NC
Margaret A. Jablonski
Vice Chancellor for Student Affairs
Brenda W. Kirby
Secretary of the University
Matthew G. Kupec
Vice Chancellor for
University Advancement
Madeline G. Levine
Interim Dean,
College of Arts and Sciences
Richard L. Mann
Vice Chancellor for Finance and
Administration
Ann E. Penn
Equal Opportunity/ADA Officer
Daniel A. Reed
Senior Adviser for Strategy
and Innovation and
Executive Director, RENCI
William L. Roper
Vice Chancellor for Medical Affairs
and Dean, School of Medicine
Michael R. Smith
Vice Chancellor for Public Service
and Engagement and Dean,
School of Government
Leslie Chambers Strohm
Vice Chancellor
and General Counsel
Tony G. Waldrop
Vice Chancellor for Research
and Economic Development
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 2 3
i n t r o d u c t o r y
the university of north carolina at chapel hill
organization chart 07
Vice Chancellor and
General Counsel
Leslie Chambers
Strohm
Director of Athletics
Richard A. Baddour
Board of Trustees Chair
Nelson Schwab I
Chancellor
James C. Moeser
Executive Vice
Chancellor and Provost
Bernadette Gray-Little
Vice Chancellor for
Student Affairs
Margaret A. Jablonski
Vice Chancellor for
Finance and
Administration
Richard L. Mann
Senior Adviser for
Strategy and Innovation
Daniel A. Reed
Equal Opportunity/
ADA Officer
Ann E. Penn
Vice Chancellor for
Medical Affairs
William L. Roper
Vice Chancellor for
Research and
Economic Development
Tony G. Waldrop
Vice Chancellor for
University
Advancement
Matthew G. Kupec
Internal Auditor
Phyllis C. Petree
2 4 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
i n t r o d u c t o r y
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 2 5
f i n a n c i al
S e c t i o n
2 6 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
if ni nt ar on dc iuaclt o r y
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 2 7
2 8 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
if ni nt ar on dc iuaclt o r y
$ Thousands
0
5,000,000
4,000,000
3,000,000
2,000,000
6,000,000
1,000,000
Total Assets
Net Assets
Total Liabilities
5,297,318 3,415,869
4,476,028 2,928,002
1,548,026
2007 2006
Capital Gifts, Grants, and Endowments
Non-Operating Revenues, net
Operating Revenues
Increase in Net Assets
Operating Expenses
1,881,449
$ Thousands
0
2,500,000
2,000,000
1,500,000
1,000,000
3,000,000
500,000
1,304,444
904,863
226,842
1,948,282
1,241,511
743,554
137,490
1,802,432
320,123
2007 2006
487,867
INTRODUCTION
Management’s discussion and analysis provides an
overview of the financial position and activities of The
University of North Carolina at Chapel Hill (the “Univer-sity”)
for the fiscal year that ended June 30, 2007, with
comparative information for the fiscal year ended June 30,
2006. Management has prepared the discussion and analysis
to be read in conjunction with the financial statements and
accompanying note disclosures.
The University is a constituent institution of the multi-campus
University of North Carolina System (UNC Sys-tem),
a component unit of the State of North Carolina and
an integral part of the State’s Comprehensive Annual Financial
Report (CAFR). The financial reporting entity for the
financial statements is comprised of the University and 11
component units. Eight component units are reported as if
they were part of the University, and three are reported as
discretely presented component units based on the nature
and significance of their relationship to the University. The
reader may refer to Note 1A for detail information on the
financial reporting entity.
FINANCIAL HIGHLIGHTS
The University’s financial position at June 30, 2007,
remained solid with total assets of $5.3 billion. Net assets,
which represent the residual interest in the University’s
assets after deducting liabilities, were $3.4 billion at
June 30, 2007. The University’s net assets increased by
$487.9 million in fiscal 2006–2007, when operating,
non-operating, and other changes are included. A
comparison of the total assets, liabilities, and net assets at
June 30, 2007, and June 30, 2006, and a comparison of the
major components of the changes in net assets for the two
fiscal years are presented below:
Management’s
Di scussion and Analysis
s tat ement of n e t a se t s
s tat ement of r evenues , e x penses ,
and changes i n n e t a se t s
07
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 2 9
Net assets increased 16.7 percent on June 30, 2007, over
the prior year. Total assets increased 18.3 percent and total
liabilities rose 21.5 percent for the same period. Operating
revenues increased at a lower rate than operating expenses
in 2006–2007 over the prior year, 5.1 percent and 8.1 per-cent,
respectively. Net non-operating revenues and expenses
increased 21.7 percent in 2006–2007 over the prior year.
The growth in state appropriations — 11.9 percent — was
significant. Investment income growth remained substantial
with a 53.5 percent increase in 2006–2007 over the prior
year. Research funding, fund raising for operational and
capital needs, and construction funding through the North
Carolina Higher Education Bond Referendum of 2000
continued to be positive factors in the sustained financial
well-being of the University.
USING THE FINANCIAL STATEMENTS
The financial statements have been prepared in accordance
with generally accepted accounting principles as prescribed
by the Governmental Accounting Standards Board (GASB),
which establishes standards for external financial reporting
for public colleges and universities. The financial statements
are presented on a consolidated basis to focus on the
University as a whole. The full scope of the University’s
activities is considered to be a single business-type activity
and accordingly, is reported within a single column in the
basic financial statements.
The University’s CAFR includes the following three
financial statements.
• Statement of Net Assets
• Statement of Revenues, Expenses, and Changes in Net Assets
• Statement of Cash Flows
Management’s discussion and analysis provides
information regarding each of these financial statements.
CONDENSED STATEMENT OF NET ASSETS
The Statement of Net Assets presents the financial
position of the University at the end of the fiscal year,
includes all assets and liabilities of the University and segre-gates
the assets and liabilities into current and non-current
components. Net assets represent the difference between
total assets and total liabilities and are one indicator of the
University’s current financial condition. The following table
summarizes the University’s assets, liabilities, and net assets
on June 30, 2007, and June 30, 2006.
Current Assets and Liabilities
The Statement of Net Assets shows that working capital,
which is current assets less current liabilities, was $535.6
million at June 30, 2007, an increase of 2.8 percent, or $14.5
million, over the previous year. The Statement of Net Assets
details the current asset and current liability categories.
Endowment and Restricted Investments
Endowment investments increased 21.5 percent during
2006–2007, and were $1.39 billion at June 30, 2007, and
$1.15 billion at June 30, 2006, and include permanent
endowments, funds internally designated as endowments
and similar funds such as gift annuities and charitable trusts.
Net assets of endowment and similar funds were $1.37
billion at June 30, 2007, and $1.12 billion for the prior year.
The endowment assets are invested with The University
of North Carolina at Chapel Hill Foundation Investment
Fund, Inc. (“Investment Fund”), which is reported as a
governmental external investment pool in the financial state-ments.
The Investment Fund is a 501(c)(3) non-profit cor-poration
established to support the University by operating
an investment pool for charitable, non-profit foundations,
associations, trusts, endowments, and funds that are
organized and operated primarily to support the University.
The investment objective is to earn an average real total
percent
2007 2006 Change
(dollars in thousands)
Assets
Current assets $1,007,274 $912,751 10.4
Non-current assets
Endowment investments and
restricted investments 2,001,979 1,604,529 24.8
Capital assets, net 2,082,829 1,874,486 11.1
Other non-current assets 205,236 84,262 143.6
Total Assets 5,297,318 4,476,028 18.3
Liabilities
Current liabilities 471,718 391,685 20.4
Non-current liabilities
Funds held in trust
for pool participants 588,099 326,419 80.2
Long-term liabilities 789,568 797,852 (1.0)
Other non-current liabilities 32,064 32,070 0.0
Total Liabilities 1,881,449 1,548,026 21.5
Net Assets
Invested in capital assets,
net of related debt 1,211,805 1,119,040 8.3
Restricted 1,586,491 1,283,449 23.6
Unrestricted 617,573 525,513 17.5
Total Net Asets $3,415,869 $2,928,002 16.7
ase t s , liabilit ies , a n d n e t a se t s
3 0 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
proved investment policy that is designed to capture a
significant portion of the upside returns during bull markets
while protecting the down side during bear markets.
Capital Assets and Debt Management
An essential aspect for enhancing and maintaining the
University’s academic, research, and service programs and
its residential life is the development and renewal of its
capital assets. The University Board of Trustees approved
the campus master plan in March 2001 to guide the
University’s physical development in the 21st Century. The
master plan and subsequent modifications mesh the critical
pieces needed for smart growth in the 21st Century —
transportation, parking, housing, utilities, and sustainability —
with the program needs of a growing campus. The master
plan combines the practical requirements of a research
university with the beauty that inspired its founders. The
University expects continued growth in the future, including
advancing plans for Carolina North, a satellite campus on
property about two miles north of main campus.
A summary of changes in capital assets is disclosed in
Note 5. Capital assets, net of accumulated depreciation, at
June 30, 2007, and June 30, 2006, were as follows:
The University is engaged in a $2.1 billion capital
construction program that began in 2000 and will continue
through the next several years. The 165 projects in the
capital program include major capital renewal of existing
buildings and infrastructure to address both deferred
maintenance and programmatic needs. The 72 completed
return of at least 5.5 percent per year, net of all fees, over
rolling five- and 10-year periods. The earnings distribution
policy is to provide a stable source of spending support that
is sustainable over the long term while preserving the pur-chasing
power of the endowment investments. The earnings
distribution rate was established at 5 percent of the previous
year’s market value, with annual increases based on infla-tionary
factors. Each year’s distribution is subject to a
4 percent floor and a 7 percent cap based on estimated fiscal
year-end market value.
Restricted investments of $609.9 million at June 30,
2007, include funds of $565.9 million of affiliated entities
that are neither part of the University’s reporting entity nor
reported discretely but do invest through the System Fund.
The remaining component is bond reserves and related
funds of $44 million.
Most of the University’s endowment investments are
currently managed within the System Fund, a pooled
investment fund vehicle. The System Fund is designed to
provide long-term, stable rates of return on the invested as-sets
through the use of a highly diversified portfolio strategy.
As reported by UNC Management Company, Inc., the
investment return on the endowment assets invested in the
System Fund for fiscal 2006–2007 was 23.4 percent. The
investment return for fiscal 2005–2006 was 19.2 percent.
The System Fund return of 23.4 percent for 2006–2007
significantly outperformed the Strategic Investment Policy
Portfolio (“SIPP”) return of 16.7 percent. The System
Fund’s return also exceeded the 70 percent S&P 500 / 30
percent Lehman Brothers Bond Index (“70/30”) return of
16.1 percent for the year.
The continuing strong investment performance has
increased the three-year annualized return to 19.3 percent
at June 30, 2007. This three-year return measure compares
well with the corresponding measure of 14.9 percent for the
SIPP and 9.4 percent for the 70/30. For the five years ended
June 30, 2007, the System Fund earned a 15.3 percent
annualized return compared to 12.3 percent for the SIPP
and 9 percent for the 70/30.
The System Fund has also outperformed its long-term
objective of real return, after inflation, of 5.5 percent for
each of the periods noted above as well as for longer time
periods. For the 10-, 15-, and 20-year time periods ended
June 30, 2007, the System Fund returned 12.1 percent, 12.7
percent, and 12.1 percent respectively. Comparatively, the
CPI plus 5.5 percent has been 8.3 percent, 8.3 percent, and
8.7 percent respectively for the corresponding time periods.
The System Fund is very well positioned in the current
environment and remains invested according to the ap-percent
2007 2006 Change
(dollars in thousands)
Capital Assets
Construction in progress $535,332 $585,216 (8.5)
Land and other
non-depreciable assets 97,030 93,980 3.2
Buildings 1,156,417 910,763 27.0
General infrastructure 191,413 190,898 0.3
Machinery and equipment 102,637 93,629 9.6
Total $2,082,829 $1,874,486 11.1
capital a se t s
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 3 1
projects total $764 million, or 37 percent of the
$2.1 billion capital construction program. The 38 projects
under construction total $614 million or 30 percent, and
the 55 projects under design represent $683 million or 33
percent. Capital funds resulting from North Carolina
Higher Education Bonds continue to provide essential re-sources
for construction. The University is directly investing
in its capital construction program using a variety of other
funding sources including general revenue bonds, cost
reimbursements from research grants, internal reserves,
and private gifts.
The University continues to use its commercial paper
program to provide low-cost bridge financing for capital
projects until gifts are received or in anticipation of an
external bond issue. Commercial paper debt was $192.4
million at June 30, 2007, and $117.4 million at June 30,
2006. The University is currently planning to issue a
long-term bond in December 2007, to refund a significant
portion of outstanding commercial paper and to provide
additional funds for capital projects.
The commercial paper program and the general revenue
bonds allow the University to use a central bank concept
for funding capital projects. The University issues fixed and
variable rate debt externally and blends the average borrow-ing
rate to allocate debt costs to individual capital projects
and campus divisions. This concept provides a stable and
flexible debt-funding source for capital projects.
The University maintains a combination of variable and
fixed rate debt, consistent with its debt management policy.
The effective, combined interest rate for variable and fixed
rate debt was 4.72 percent for fiscal 2006–2007 and
4.65 percent for fiscal 2005–2006. The interest rate on the
commercial paper program for fiscal 2006–2007 was 3.6
percent and for fiscal 2005–2006 was 3 percent. Interest
rates on the University’s variable rate, long-term bonds were
3.59 percent for fiscal 2006–2007 and 2.93 percent for fiscal
2005–2006. Interest rates on fixed rate, long-term bonds
are disclosed in Note 8B of the financial statements. The
University’s financial strength allowed it to achieve ratings
of AA+/Aa1 by the national rating agencies.
The University’s debt policy uses two key ratios to
measure debt capacity, financial health, and credit quality.
The expendable resources to debt ratio measures the
availability of expendable assets to cover long-term
obligations should the University be required to repay all of
its obligations immediately. The debt service to operations
ratio measures the University’s ability to repay annual princi-pal
and interest associated with all outstanding debt and its
impact on the overall budget. Each ratio is compared to the
University’s debt policy standard and the appropriate peer
group comparison for fiscal 2005-2006 (the latest available
numbers). The debt policy floor for expendable resources to
debt is 1.5 times, and the metrics indicate the University has
sufficient expendable resources to pay its long-term debt
obligations. The debt policy ceiling for debt service to oper-ations
is 4 percent, and the metrics indicate the University’s
annual debt service requirements are a reasonable proportion
of the operating budget.
Times
2007
0
3.0
2.5
2.0
1.5
1.0
0.5
2.3
1.5
2.4
1.8
2.2
2006 2005 University
Debt Policy
(Minimum)
Moody’s Public
Universities
Aaa & Aa1, 2006
Percent
2007
4.5
4.0
0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
4.0 4.1
2.2
3.2 3.2
2006 2005 University
Debt Policy
(Maximum)
Moody’s Public
Universities
Aaa & Aa1, 2006
expendable resources to debt
debt services to operations
expendable r e sources t o d ebt
debt services t o o perat ions
3 2 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
Other Non-current Assets
Other non-current assets were $205.2 million at June 30,
2007, and $84.3 million at June 30, 2006, a 143.6 percent
increase. The change in other non-current assets from the
prior year included a $58.4 million increase in restricted
resources due from the primary government. Restricted
resources due from the primary government include receiv-ables
for designated capital construction projects funded
from proceeds from statewide higher education bonds and
other state resources. The increase resulted from $59.6
million additional resources in statewide higher education
bonds due for capital construction projects.
Non-current Liabilities
Non-current liabilities were $1.4 billion at June 30, 2007,
and $1.2 billion at June 30, 2006, and include funds held
in trust for the University’s affiliated foundations and other
campuses in the UNC System and their affiliates of $588.1
million and $326.4 million, respectively. These entities are
not part of the University’s financial reporting entity and are
not discretely presented, but the entities do invest through
the System Fund. The increase in funds held in trust of
80.2 percent over the prior year resulted from strong invest-ment
performance, participant contributions, and new
participants in the System Fund.
Net Assets
Net assets represent the value of the University’s assets after
liabilities are deducted. The University’s net assets were
$3.4 billion at June 30, 2007, an increase of $487.9 million
over the prior year. Net assets invested in capital assets, net
of related debt, represents the University’s total investment
in capital assets, net of outstanding debt obligations related
to those capital assets. To the extent debt has been incurred
but not yet expended for capital assets, such amounts are
not included. Non-expendable restricted net assets include
endowment and similar assets whose use is limited by
donors or other outside sources and as a condition of the
gift, the principal is to be maintained in perpetuity.
Expendable restricted net assets include resources in which
the University is legally obligated to spend the resources in
accordance with restrictions provided by external parties.
Unrestricted net assets are not subject to externally imposed
stipulations; however, most of these resources have been
designated for particular academic, research, or other
programs, as well as capital projects.
18%
32%
35%
15%
Invested in
Capital Assets,
net of related debt
$1,211,805
Restricted
Non-expendable
$496,448
Unrestricted
$617,573
Restricted
Expendable
$1,090,043
$ Thousands
2 0 0 7 n e t a se t s : $ 3 , 4 1 5 , 8 6 9
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 3 3
CONDENSED STATEMENT OF REVENUES,
EXPENSES, AND CHANGES IN NET ASSETS
The Statements of Revenues, Expenses, and Changes in Net
Assets present the University’s results of operations. The
statements for the fiscal year ended June 30, 2007, and the
prior year are summarized as follows:
Operating Revenues
The operating revenues represent resources generated by
the University in fulfilling its instruction, research, and
public service missions. Student tuition and fees are
reported net of the scholarship discount, which was $51.1
million for fiscal 2006–2007 and $45.3 million for the prior
year. Total net revenues from student tuition and fees
increased 7.5 percent over the prior year. The 2006–2007
tuition rates increased 7.8 percent for undergraduate
resident students, 6.5 percent for undergraduate non-resi-dents,
13.8 percent for graduate residents, and 2.8 percent
for graduate non-residents.
Operating revenues from grants and contracts increased
2.3 percent over the prior year as reflected in the financial
statements. Discussion of grants and contracts in terms of
awards provides another useful perspective. The University
is among the nation’s leading public research universities,
with a diversified portfolio of research that attracted more
than $610 million in sponsored program funding during
fiscal 2006–2007, a 2.9 percent increase over the previous
year. As federal funding for research stalls and competition
for investment from other sources increases, the University
was able to sustain growth in awards.
While competition for funding from the National
Institutes of Health (NIH) funding has increased signifi-cantly,
the University share of those funds improved 6.6
percent to $314 million. Health-related research continues
to receive the bulk of research dollars, with the medical
school bringing in $298 million in 2006–2007, almost two-thirds
from the NIH. The School of Public Health received
$115 million, and the College of Arts and Sciences received
$95 million. Interdisciplinary research centers, institutes
percent
2007 2006 Change
(dollars in thousands)
Operating Revenues
Student tuition and fees, net $210,651 $195,882 7.5
Grants and contracts 566,887 554,047 2.3
Sales and services, net 521,653 485,627 7.4
Other 5,253 5,955 (11.8)
Total Operating Revenues 1,304,444 1,241,511 5.1
Total Operating Expenses 1,948,282 1,802,432 8.1
Operating Loss (643,838) (560,921) 14.8
Non-operating Revenues
(Expenses)
State appropriations 492,471 440,070 11.9
Non-capital gifts and grants 136,960 136,212 0.5
Investment income 318,442 207,423 53.5
Other net non-operating (43,010) (40,151) 7.1
Income Before Other Changes 261,025 182,633 42.9
Capital grants
and appropriations 171,738 68,053 152.4
Capital gifts 15,662 13,368 17.2
Additions to permanent
endowments 39,442 56,069 (29.7)
Increase in Net Assets 487,867 320,123 52.4
Net Assets – July 1 2,928,002 2,607,879 12.3
Net Asets – June 30 $3,415,869 $2,928,002 16.7
Fiscal year 2006-2007 revenues and other changes total $2,479,159 and expenses
total $1,991,292. Fiscal year 2005-2006 revenues and other changes total $2,162,706,
and expenses total $1,842,583..
universit y o perat ions
3 4 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
and other units that do not fall under one particular school
accounted for $138 million. The University averages 120
technology transfer agreements each fiscal year, providing
resources of $2.5 to $4 million in royalties. The University is
ranked 10th in the nation in patent strength.
Sales and services include the revenues of campus
auxiliary operations such as student housing, student stores,
student health services, the utilities system, and parking and
transportation, as well as revenues from patient services
provided by the professional health-care clinics. Other reve-nues
represent operating resources not separately identified
and include, for example, an assessment to the Investment
Fund to support administrative services.
Operating Expenses
The University’s operating expenses were $1.9 billion for
the fiscal year ended June 30, 2007, an increase of 8.1
percent over the prior year. The operating expenses are
reported by natural classification in the financial statements
and by functional classification in the notes to the financial
statements (Note 12). The following table illustrates the
University’s operating expenses by functional classification
and by natural classification:
The following graph illustrates the University’s operating
expenses by function.
57%
24%
4%
9%
3%3%
Scholarships and Fellowships $56,662
Depreciation $80,827
Utilities $60,727
Salaries and
Benefits
$1,122,269
Supplies and Materials
$165,704
Services $462,093
$ Thousands
$ Thousands
4% 3%
4%
5%
5%
6%
16%
24%
32%
1%
Student Services $25,865
Institutional Support $76,188
Student Financial Aid $56,662
Academic Support
$97,776
Public Service $90,025
Auxiliary
Enterprises
$459,660
Instruction
$624,128
Depreciation $80,827
Research $312,160
Operations and
Maintenance of Plant
$124,991
percent
2007 2006 Change
(DOLARS in thousands)
Instruction $624,128 $595,319 4.8
Research 312,160 285,646 9.3
Public Service 90,025 85,330 5.5
Academic Support 97,776 86,229 13.4
Student Services 25,865 23,957 8.0
Institutional Support 76,188 71,609 6.4
Operations and
Maintenance of Plant 124,991 111,720 11.9
Student Financial Aid 56,662 54,105 4.7
Auxiliary Enterprises 459,660 424,042 8.4
Depreciation 80,827 64,475 25.4
Total Operating Expenses $1,948,282 $1,802,432 8.1
percent
2007 2006 Change
(DOLARS in thousands)
Salaries and Benefits $1,122,269 $1,042,452 7.7
Supplies and Materials 165,704 152,911 8.4
Services 462,093 432,212 6.9
Scholarships and Fellowships 56,662 54,105 4.7
Utilities 60,727 56,277 7.9
Depreciation 80,827 64,475 25.4
Total Operating Expenses $1,948,282 $1,802,432 8.1
The following graph illustrates the University’s operating
expenses by the natural classification.
operat ing e x penses by function
operat ing e x penses by n ature
2007 operating expenses by function: $1,948,282
2007 operating expenses by nat u r e : $ 1 , 9 4 8 , 2 8 2
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 3 5
Operating expense categories reported by natural
classification generally increased at a comparable rate to
total operating expenses. The 25.4 percent increase in depre-ciation
expenses in 2006–2007 over the prior year resulted
from the completion of several major buildings. The $2.1
billion capital construction that began in 2000 has resulted
in an increased depreciable capital asset base of $2.3 billion
at June 30, 2007, an increase of 76.7 percent from five years
earlier. Operations and maintenance of plant expenses
increased 11.9 percent to keep pace with additional facili-ties.
Academic support expenses increased 13.4 percent in
large part from additional resources provided for
information technology needs.
Non-operating Revenues and Expenses
State appropriations, non-capital gifts and grants, and
investment income are considered non-operating because
they were not generated by the University’s principal,
ongoing operations. For example, state appropriations were
not generated by the University but were provided to help
fund operating expenses.
State appropriations were $492.5 million for fiscal
2006–2007, an 11.9 percent increase. The University re-ceived
budget increases totaling $25.9 million to fund salary
and benefit increases, $10.9 million for enrollment increases
and program enhancements, $8.5 million for operating costs
for new facilities, $5.9 million for the Renaissance Comput-ing
Institute, and $1.2 million for other purposes.
Non-capital gifts and grants remained stable and include
expendable gifts and federal awards that are not considered
to be operating revenues. Net investment income of
$318.4 million, an increase of 53.5 percent over 2005–2006,
includes income and realized and unrealized gains and is
net of realized and unrealized losses and investment
management fees. An investment return of 23.4 percent by
the System Fund, a 21.5 percent increase in endowment
investments, and increased levels of short-term investments
contributed to the higher level of revenues. For detail
discussion, the reader may refer to the Endowment and
Restricted Investments section of the Management’s
Discussion and Analysis.
Total Operating and Non-operating Revenues
Operating and non-operating revenues such as state
appropriations, non-capital grants, non-capital gifts, and
investment income are used to fund University operations.
The following chart illustrates the University’s operating and
non-operating revenues, which total $2.3 billion for fiscal
year 2006–2007.
$ Thousands
Sales and Services, net
$324,432
Non-Operating
Revenues
$947,873
Federal
Grants
and
Contracts
$429,059
Patient Services, net
$197,221
Interest Earnings
on Loans
$679 (0%)
State Appropriations
$492,471
Investment Income
(net of Investment Expense)
$318,442
Non-capital Gifts, net
$74,291
Non-capital Grants
$62,669
Non-Operating
Revenues: Breakdown
Other Operating
Revenues
$4,574 (0%)
Student Tuition and Fees, net
$210,651
Non-governmental
Grants and Contracts
$92,572
State and Local
Grants and Contracts
$45,256
19%
15%
9%
9%
4%
2%
42%
22%
3%
3%
14%
Other Changes in Net Assets
Capital grants and appropriations of $171.7 million for fiscal
2006–2007 and $68.1 million for fiscal 2005–2006 are from
statewide higher education bond proceeds and state
appropriations for capital construction projects. Capital gifts
of $15.7 million for fiscal 2006–2007 and $13.4 million for
the prior year resulted from fund-raising efforts and also
provided funding for construction projects. Non-expendable
gifts and funds from the state’s program to match gifts for
distinguished professorship endowments resulted in addi-tions
to permanent endowments of $39.4 million during
fiscal 2006–2007 and $56.1 million during fiscal 2005–2006.
2 0 0 7 t o tal r evenues by s o u r c e : $ 2 , 2 5 2 , 3 1 7
3 6 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
ECONOMIC OUTLOK
Management believes the University is financially well-positioned
for the future and will continue to maintain and
generate sufficient resources to successfully fulfill its teach-ing,
research, and service missions. The fiscal improvement
during 2006–2007 enhanced the University’s solid financial
foundation. The University’s tuition levels are appealing
to prospective students and provide important resources
for key University priorities including salaries and gradu-ate
teaching assistant stipends. The University’s support
from the state continues to improve, sponsored awards are
a proven and reliable source in support of the University’s
research mission, philanthropic efforts have demonstrated
outstanding success, and investment returns provide a stable
stream of earnings. The University’s strong debt credit
ratings of Aa1 and AA+ allow it to obtain competitive
financing for capital construction.
Tuition rates increased for fiscal 2007–2008 by 7.2 percent
for undergraduate residents, 6.9 percent for undergraduate
non-residents, 12.2 percent for graduate residents, and 2.8
percent for graduate non-residents. The University’s academ-ic
standing allows it to continuously attract top students.
The University’s CAFR Statistical Section includes historical
data for important metrics including the ratio of accepted
applications as a percentage of total applications and the ratio of
enrolled students as a percentage of accepted applications.
The Governor and the General Assembly of North
Carolina have continued to demonstrate strong financial
support for higher education. The budgeted funding level
for state appropriations for fiscal 2007–2008 totals $539.7
million, which represents an increase of 9.6 percent over fis-cal
2006–2007 actual state appropriations. This level of state
appropriation funding includes faculty and staff pay and
benefit increases of $26.4 million. The fiscal 2007–2008 pay
increase of 4 percent for faculty and staff is the fourth
consecutive year of base salary increases for all employees.
An additional 1 percent pay increase was authorized as
incentive funding tied to the University’s strategic goal of
competing with peer campuses to improve competitive sal-ary
levels for faculty. Other budget changes included $20.9
million for enrollment increases and program enhance-ments,
$9.7 million for operating costs for new facilities, and
$9.8 million in net budget reductions. Additional budget
reductions are not anticipated for fiscal 2007–2008.
External funding from contracts and grants increased to
$610 million in fiscal 2006–2007. The growth in research
occurs as the University continues to work with the local
community on plans for Carolina North, the research
campus to be located near the main campus. The first com-ponent
of Carolina North will be the Innovation Center.
More than an incubator, the facility will provide space for
research start-ups and capital management teams to attract
seed capital and accelerate research into the marketplace. In
2008, the University also plans to open a Nutrition Research
Institute as part of the North Carolina Research Campus, a
public-private partnership, in Kannapolis, N.C.
The General Assembly made a major commitment to
research by creating the University Cancer Research Fund,
which will invest $25 million in 2007–2008, $40 million
the following year and then an annual investment of
$50 million. The funds will support cancer research and
patient care through the School of Medicine, Lineberger
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 3 7
Comprehensive Cancer Center, and the UNC Health Care
System, which is currently building the North Carolina
Cancer Hospital.
State appropriations and tuition are key resources for
faculty salaries. The University’s goal is to take average fac-ulty
salaries, now at approximately the 50th percentile of the
peer group of institutions, to the 80th percentile, possibly
as soon as fiscal 2008–2009. Faculty retention is essential
to the objective of maintaining the quality of education
at the University. Faculty attrition through retirements or
resignations is a key challenge. Other challenges will require
resources as well. For the fall semester of fiscal 2007–2008
and for the first time in the University’s history, student
enrollment exceeded 28,000.
Resources to meet these important needs will be a key
factor, and the University’s diverse revenue base will be
invaluable. It is the University’s goal to secure $1 billion in
external research funding by 2015. Management believes
the investment performance of its endowment fund will
continue to earn attractive returns and provide impor-tant
resources for University operations. The University’s
investment management operation is separately organized
as the UNC Management Company, Inc., the non-profit
corporation organized and operated as a 501(c)(3) entity,
to provide investment management services and administra-tive
services to the University and to the other campuses of
the UNC System and their affiliated non-profit foundations
as appropriate. Management believes this structure will con-tinue
to enhance the ability to attract and retain investment
professionals and increase the pool of funds and resulting
investment returns.
The Carolina First Campaign is the largest fund-raising
drive in University history to support the vision to become
the nation’s leading public university. The campaign will
conclude December 31, 2007, and surpassed its $2 billion
goal on February 21, 2007. Private gifts and grants, along
with state matching funds, exceeded $250 million in fiscal
2006–2007, marking the fourth consecutive year that the
University surpassed its previous high. New gifts, pledges,
and other commitments raised the campaign total to $2.17
billion. The goal of the Carolina First Campaign, which
began in July 1999, was increased to $2 billion in October
2005 from the initial goal of $1.8 billion.
The University’s diverse and sound revenue streams,
its endowment, and its capital asset base provide a strong
financial foundation and provide resources to continue the
excellent teaching, research, and public service endeavors
provided to students, citizens, and other constituents. Sup-port
from the State of North Carolina, the ability to attract
top prospective students, vibrant research funding, superior
investment performance, a dynamic capital construction
program, and an exceptional fund-raising campaign all
contribute to a positive outlook for the University. The
University’s commitment to sound financial and budgetary
planning, protection and enhancement of its endowed and
physical assets, as well as its observance of compliance and
control standards, support a solid financial future for
the University.
3 8 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
if ni nt ar on dc iuaclt o r y
As s e t s
Current Assets
Cash and cash equivalents $168,157,134
Restricted cash and cash equivalents 399,669,945
Short-term investments 164,752,029
Restricted short-term investments 103,568,237
Receivables, net (Note 4) 145,707,432
Due from State of North Carolina component units 2,712,529
Inventories 19,505,876
Notes receivable, net (Note 4) 3,200,439
Total current assets 1,007,273,621
Non-current Assets
Restricted cash and cash equivalents 79,492,910
Receivables, net (Note 4) 23,672,776
Restricted due from primary government 61,645,345
Endowment investments 1,392,068,332
Restricted investments 609,911,090
Notes receivable, net (Note 4) 32,106,309
Investment in joint venture 8,318,917
Capital assets, non-depreciable (Note 5) 632,361,431
Capital assets, depreciable, net (Note 5) 1,450,467,489
Total non-current assets 4,290,044,599
Total assets 5,297,318,220
L i a b i l i t i e s
Current Liabilities
Accounts payable and accrued liabilities (Note 6) 96,318,357
Due to primary government 94,172
Due to State of North Carolina component units 4,226,441
Deposits payable 1,681,775
Funds held for others 5,178,573
Unearned revenue 54,659,696
Interest payable 4,330,711
Short-term debt (Note 7) 192,414,000
Long-term liabilities — current portion (Note 8) 112,814,609
Total current liabilities 471,718,334
Non-current Liabilities
U. S. government grants refundable 32,064,079
Funds held in trust for pool participants 588,098,709
Long-term liabilities (Note 8) 789,568,351
Total non-current liabilities 1,409,731,139
Total liabilities 1,881,449,473
Total assets less liabilities $3,415,868,747
Ne t As s e t s
Invested in capital assets, net of related debt $1,211,804,330
Restricted for:
Non-expendable (Note 10) 496,448,465
Expendable (Note 10) 1,090,042,641
Unrestricted 617,573,311
Total net assets $3,415,868,747
s tat ement of n e t a se t s J u n e 3 0 , 2 0 0 7
The accompanying notes to the financial
statements are an integral part of this statement.
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 3 9
f i n a n c i a l
s tat ement of r evenues , e x penses ,
and changes i n n e t a se t s F o r t h e f i s c a l y e a r e n d e d J u n e 3 0 , 2 0 0 7
Revenues
Operating Revenues
Student tuition and fees, net (Note 11) $210,651,518
Patient services, net (Note 11) 197,221,518
Federal grants and contracts 429,058,855
State and local grants and contracts 45,255,927
Non-governmental grants and contracts 92,571,877
Sales and services, net (Note 11) 324,431,513
Interest earnings on loans 679,573
Other operating revenues 4,573,793
Total operating revenues 1,304,444,574
Expenses
Operating Expenses
Salaries and benefits 1,122,269,124
Supplies and materials 165,703,903
Services 462,092,772
Scholarships and fellowships 56,662,461
Utilities 60,727,000
Depreciation 80,826,849
Total operating expenses 1,948,282,109
Operating loss (643,837,535)
Non-operat i n g Re v e n u e s ( E x p e n s e s )
State appropriations 492,471,029
Non-capital grants 62,668,734
Non-capital gifts, net (Note 11) 74,291,599
Investment income
(net of investment expense of $4,595,146) 318,441,609
Interest and fees on capital asset related debt (42,926,147)
Other non-operating expenses (84,091)
Net non-operating revenues 904,862,733
Income before other revenues 261,025,198
Capital appropriations 52,887,775
Capital grants 118,849,967
Capital gifts 15,661,798
Additions to endowments 39,441,876
Increase in net assets 487,866,614
N e t A s s e t s
Net assets — July 1, 2006 2,928,002,133
Net assets — June 30, 2007 $3,415,868,747
The accompanying notes to the financial
statements are an integral part of this statement.
4 0 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
if ni nt ar on dc iuaclt o r y
s tat ement of c a s h flows F o r t h e f i s c a l y e a r e n d e d J u n e 3 0 , 2 0 0 7
The accompanying notes to the financial
statements are an integral part of this statement.
CASH FLOWS FROM OPERA TING ACTIVITIES
Received from customers $1,306,740,163
Payments to employees and fringe benefits (1,111,960,376)
Payments to vendors and suppliers (701,767,039)
Payments for scholarships and fellowships (56,662,461)
Loans issued (8,907,039)
Collection of loans 7,906,231
Other payments (5,691,002)
Net cash used by operating activities (570,341,523)
CASH FLOWS FROM NON- C AP I TAL FINANCING ACTIVITIES
State appropriations 492,471,029
Non-capital grants 64,163,318
Non-capital gifts 74,695,006
Additions to endowments 39,441,876
Related activity agency receipts 266,636,823
Net cash provided by non-capital financing activities 937,408,052
CASH FLOWS FROM C AP I TAL f i n a nci n g AND RELA TED FINANCING ACTIVITIES
Proceeds from capital debt 76,180,965
Capital grants 60,415,641
Capital appropriations 52,887,775
Capital gifts 13,003,044
Acquisition and construction of capital assets (301,452,335)
Principal paid on capital debt and leases (43,344,021)
Interest and fees paid on capital debt and leases (43,675,710)
Net cash used by capital financing
and related financing activities (185,984,641)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of investments 944,361,874
Investment Income 70,176,913
Purchase of investments and related fees (1,062,535,927)
Net cash used by investing activities (47,997,140)
Net increase in cash and cash equivalents 133,084,748
Cash and cash equivalents, July 1, 2006 514,235,241
Cash and cash equivalents, June 30, 2007 $647,319,989
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 4 1
The accompanying notes to the financial
statements are an integral part of this statement.
R e con c i l i at ion of n e t op e r at i n g r e v e n u e s
( e x p e n s e s ) t o n e t ca s h u s e d b y o p e r at i n g act i v i t i e s
Operating loss ($643,837,535)
Adjustments to reconcile operating loss to net cash
used by operating activities
Depreciation expense 80,826,849
Allowances, write-offs, and amortizations 90,404
Changes in assets and liabilities
Receivables, net (21,797,719)
Inventories (2,078,379)
Notes receivable, net (1,688,719)
Accounts payable and accrued liabilities (5,854,779)
Due to primary government (96,536)
U.S. government grants refundable (5,699)
Unearned revenue 19,095,916
Compensated absences 5,004,674
Net cash used by operating activities ($570,341,523)
Non-ca s h i n v e s t i n g , ca p i ta l , a n d f i n a nci n g act i v i t i e s
Assets acquired through assumption of a liability $966,892
Assets acquired through a gift $2,658,754
Change in fair value of investments $143,345,326
Reconci l i at i o n o f ca s h a n d ca s h e q u i valents
Current Assets
Cash and cash equivalents $168,157,134
Restricted cash and cash equivalents 399,669,945
Non-current assets
Restricted cash and cash equivalents 79,492,910
Total cash and cash equivalent — June 30, 2007 $647,319,989
4 2 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
if ni nt ar on dc iuaclt o r y
The accompanying notes to the financial
statements are an integral part of this statement.
As s e t s
Current assets
Cash and cash equivalents $9,781,745 $9,116,463 $40,889,829
Investments 176,385,349 123,760,320
Unconditional promises to give, net 8,381,433 8,160,296 5,329,213
Contributions receivable from remainder trusts 4,083,169
Accounts receivable 460,369
Funds held in trust 207,296
Accrued income receivable 41,461 239,969
Prepaid expenses 119,688
Miscellaneous receivables 244,069
Total current assets 18,872,304 197,745,277 170,583,088
Property and equipment
Building 549,641
Furniture and equipment 650,324 406,646
Leasehold interest — building 3,750,483
Vehicle 8,930
4,409,737 956,287
Less: allowance for depreciation (305,078) (330,019)
Total property and equipment 4,104,659 626,268
Other assets
Investments 127,941,398 52,310,810
Unconditional promises to give,net 18,435,542 10,242,668
Restricted cash 3,474,660 62,080
Split-interest agreements 1,518,748
Restricted investments 545,182
Real estate interests held for investment 49,500
Student loans receivable 48,049
Cash surrender value of life insurance 2,073,802 392,632
Total other assets 151,419,848 2,073,802 63,601,421
Total assets $174,396,811 $199,819,079 $234,810,777
L i a b i l i t i e s a n d Ne t As s e t s
Current liabilites
Accounts payable $296,394 $405,640
Annuities payable $117,367
Accrued expenses 152,494 291,660
Total current liabilities 448,888 117,367 697,300
Long-term debt 2,100,000
Total other liabilities 2,100,000
Total liabilities 2,548,888 117,367 697,300
Net assets
Unrestricted 15,592,993 13,033,948
Temporarily restricted 84,768,974 108,021,706 168,768,719
Permanently restricted 71,485,956 91,680,006 52,310,810
Total net assets 171,847,923 199,701,712 234,113,477
Total liabilities and net assets $174,396,811 $199,819,079 $234,810,777
s tat ement of financial posit ion J u n e 3 0 , 2 0 0 7
component uni t s
UNC-CH AR T S AND SCIENCES THE ED UCAT IONAL FOU NDAT IO N T HE MEDICAL FOU NDAT ION
FOU NDAT ION, INC. SCHOLARSHIP ENDOWMENT TRUST O F NOR TH CAROLINA, INC.
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 4 3
f i n a n c i a l
s tat ement of a c t ivit ies
and changes i n n e t a se t s F o r t h e f i s c a l y e a r e n d e d J u n e 3 0 , 2 0 0 7
The accompanying notes to the financial
statements are an integral part of this statement.
Support a n d Revenue
Support
Contributions $21,448,195 $10,400,567 $19,294,750
Development assessment fee 1,575,000
Change in value of split-interest agreements 185,590
Donated facilities 40,000
Actuarial adjustment of annuities payable 70,501
Endowment investment return
designated for current operations 6,202,071
Total support 23,248,785 16,673,139 19,294,750
Revenue
Interest and dividend income 9,072,890
Net unrealized and realized gains
(losses) on investments 21,515,964 23,363,640
Investment income 3,586,033
Gain on sale of real estate investments 18,120
Loss on sale of property and equipment (7,084)
Other income 22,375 785,444
Total revenue 25,124,372 33,233,010
Total support and revenue 48,373,157 16,673,139 52,527,760
Expenses
Program services
Grants 8,281,289 15,409,135
Scholarship expense distribution 6,190,200
Annuity payments 11,871
Other expenses 234,300
Total program services 8,281,289 6,436,371 15,409,135
Supporting services
Fundraising expenses 2,027,874 1,360,198
Management and general 911,092 1,364,698
Total supporting services 2,938,966 2,724,896
Total expenses 11,220,255 6,436,371 18,134,031
Change in net assets from operations 37,152,902 10,236,768 34,393,729
transfers
Transfers to UNC-CH Foundation (356,669)
Ot h e r changes
Investment return in excess of amounts
designated for current operations 27,533,904
Changes in net assets 36,796,233 37,770,672 34,393,729
Net assets — beginning of year 134,442,602 161,931,040 200,814,685
Prior period adjustment 609,088 (1,094,937)
Net assets — beginning of year as restated 135,051,690 161,931,040 199,719,748
Net assets — end of year $171,847,923 $199,701,712 $234,113,477
component uni t s
UNC-CH AR T S AND SCIENCES THE ED UCAT IONAL FOU NDAT IO N T HE MEDICAL FOU NDAT ION
FOU NDAT ION, INC. SCHOLARSHIP ENDOWMENT TRUST O F NOR TH CAROLINA, INC.
4 4 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
if ni nt ar on dc iuaclt o r y
45 NOTE 1 Significant Accounting Policies
A Financial Reporting Entity
B Basis of Presentation
C Basis of Accounting
D Cash and Cash Equivalents
E Investments
F Receivables
G Inventories
H Capital Assets
I Restricted Assets
J Funds Held in Trust for Pool Participants
K Funds Held in Trust by Others
L Non-current Long-term Liabilities
M Compensated Absences
N Net Assets
O Scholarship Discounts
P Revenue and Expense Recognition
Q Internal Sales Activities
R Related Parties
50 NOTE 2 Deposits and Investments
A Deposits
B Investments
56 NOTE 3 Endowment Investment Return
57 NOTE 4 Receivables
58 NOTE 5 Capital Assets
58 NOTE 6 Accounts Payable and Accrued Liabilities
58 NOTE 7 Short-term Debt
Index
59 NOTE 8 Long-term Liabilities
A Changes in Long-term Liabilities
B Bonds Payable
C Demand Bonds
D Capital Appreciation Bonds
E Annual Requirements
F Bond Defeasance
G Notes Payable
H Annuities Payable
65 NOTE 9 Lease Ob l igations
A Capital Lease Obligations
B Operating Lease Obligations
C Other Lease Obligations
65 NOTE 10 Restricted Net Assets
66 NOTE 11 Revenues
66 NOTE 12 Operating Expenses by Function
67 NOTE 13 Pension Plans
A Retirement Plans
B Deferred Compensation and
Supplemental Retirement Income Plans
68 NOTE 14 Other Post-Employment Benefits
A Heath Care for Long-term Disability
Beneficiaries and Retirees
B Disability Income
68 NOTE 15 Risk Management
70 NOTE 16 Commitments and Contingencies
A Commitments
B Pending Litigations and Claims
C Other Contingent Receivables
71 NOTE 17 Rel a ted Parties
71 NOTE 18 Subsequent Events
notes to the
financial statements June 30, 2007 07
Index
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 4 5
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
A Financial Reporting Entity
The concept underlying the definition of the financial
reporting entity is that elected officials are accountable to
their constituents for their actions. As required by account-ing
principles generally accepted in the United States of
America, the financial reporting entity includes both the
primary government and all of its component units. An
organization other than a primary government serves as a
nucleus for a reporting entity when it issues separate financial
statements. The University of North Carolina at Chapel Hill
(University) is a constituent institution of the multi-campus
University of North Carolina System, which is a component
unit of the State of North Carolina and an integral part of
the State’s Comprehensive Annual Financial Report.
The accompanying financial statements present all funds
belonging to the University and its component units. While
the Board of Governors of the University of North Carolina
System has ultimate responsibility, the chancellor, the Board
of Trustees, and the Board of Trustees of the Endowment
Fund have delegated responsibilities for financial account-ability
of the University’s funds. The University’s component
units are either blended or discretely presented in the
University’s financial statements. The blended component
units, although legally separate, are, in substance, part of the
University’s operations and therefore, are reported as if they
were part of the University. Discretely presented component
units’ financial data are reported in separate financial
statements because of their use of different GAAP reporting
models and to emphasize their legal separateness.
Blended Component Units Although legally separate,
The University of North Carolina at Chapel Hill Foundation
Investment Fund, Inc. (Investment Fund), UNC Investment
Fund, LLC (System Fund), UNC Management Company,
Inc. (Management Company), The University of North
Carolina at Chapel Hill Foundation, Inc. (UNC-Chapel Hill
Foundation), The Kenan-Flagler Business School Founda-tion
(Business School Foundation), The School of Social
Work Foundation, Inc. (Social Work Foundation), U.N.C.
Law Foundation, Inc. (Law Foundation), and The University
of North Carolina at Chapel Hill School of Education
Foundation, Inc. (School of Education Foundation), are
reported as if they were part of the University.
The Investment Fund is governed by a board consisting
of 11 ex-officio directors and one or two elected directors.
Ex-officio directors include all of the members of the Board
of Trustees of the Endowment Fund of the University, the
vice chancellor for finance and administration, and the vice
chancellor for university advancement. The UNC-Chapel
Hill Foundation Board may, in its discretion, elect one or
two of its at-large members to the Investment Fund Board.
The Investment Fund supports the University by operating
an investment fund for charitable, non-profit foundations,
associations, trusts, endowments, and funds that are
organized and operated primarily to support the University.
Because members of the Board of Directors of the Invest-ment
Fund are officials or appointed by officials of the
University and the Investment Fund’s primary purpose is
to benefit the University and other organizations operated
primarily to support the University, its financial statements
have been blended with those of the University.
The System Fund was organized by the Investment Fund
to allow the University, the University of North Carolina
and its other constituent institutions (UNC System), affili-ated
foundations, associations, trusts, and endowments that
support the University and the UNC System, to pool their
resources and invest collectively in investment opportuni-ties
identified, structured and arranged by the Management
Company. The membership interests are offered only to gov-ernment
entities or tax-exempt organizations that are con-trolled
by or support the University or UNC System. The
Investment Fund contributed and assigned all of its assets
to the System Fund effective January 1, 2003, in exchange
for its membership interest in the System Fund. Upon such
contribution and assignment, and in consideration thereof,
the System Fund has assumed all liabilities and obligations
of the Investment Fund in respect of such contributed as-sets.
At June 30, 2007, the Investment Fund membership
interest was approximately 91.8 percent of the System Fund
total membership interests. Because the Investment Fund
is the organizer and a predominant member of the System
Fund, the financial statements of the System Fund have
been blended with those of the University.
The Management Company is a North Carolina
non-profit corporation organized and operated exclusively
to support the educational mission of the University. The
Management Company provides investment management
services to the University, UNC System, and institutions
and affiliated tax-exempt organizations, and performs other
functions for and generally carries out the purposes of the
University. The Management Company is governed by five
ex-officio directors and one or two additional directors as
fixed or changed from time to time by the board, elected
by the ex-officio directors. The ex-officio directors consist
of the chancellor of the University, the vice chancellor for
finance and administration of the University, the chairman
of the University’s Board of Trustees, the chairman of the
Board of Directors of the Investment Fund, and the
president of the Management Company. Because members
of the Board of Directors of the Management Company are
officials or appointed by officials of the University and the
Management Company’s primary purpose is to benefit the
University and other organizations operated primarily to
4 6 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
support the University, its financial statements have been
blended with those of the University.
The UNC-Chapel Hill Foundation is governed by a
17-member board consisting of nine ex-officio directors and
eight elected directors. Ex-officio directors include the
chairman of the University Board of Trustees, the chancellor,
the vice chancellor for finance and administration, and the
vice chancellor for university advancement (non-voting). In
addition, the Board of Trustees elects two ex-officio direc-tors
from among its own members as well as three ex-officio
directors from the Board of Trustees of the Endowment
Fund who have not otherwise been selected. The eight
remaining directors are elected as members of the UNC-Chapel
Hill Foundation Board of Directors by action of the
ex-officio directors. The UNC-Chapel Hill Foundation aids,
supports, and promotes teaching, research, and service in
the various educational, scientific, scholarly, professional,
artistic, and creative endeavors of the University. Because
members of the Board of Directors of the UNC-Chapel
Hill Foundation are officials or appointed by officials of
the University and the UNC-Chapel Hill Foundation’s sole
purpose is to benefit the University, its financial statements
have been blended with those of the University.
The Business School Foundation is governed by a board
consisting of four ex-officio directors and four or more
elected directors. Ex-officio directors include the dean of the
Kenan-Flagler Business School (Business School), as well as
the school’s chief financial officer, associate dean of academic
affairs, and associate dean for MBA Programs. The remain-ing
directors are elected to the Business School Foundation
Board of Directors by action of the ex-officio directors. The
Business School Foundation aids, promotes, and supports
the Kenan-Flagler Business School at the University. Because
members of the Board of Directors of the Business School
Foundation are officials or appointed by officials of the
University, the financial statements of the Business School
Foundation have been blended with those of the University.
The Social Work Foundation is governed by a board con-sisting
of two ex-officio directors and eight elected directors.
Ex-officio directors include the dean of the School of Social
Work and the chairman of the school’s Board of Advisors.
The remaining eight directors are elected to the Social Work
Foundation Board of Directors by action of a majority of
board members. The remaining eight directors as of June 30,
2007, were elected by the ex-officio directors based on foun-dation
bylaws in effect prior to 2006–07. The Social Work
Foundation fosters and promotes the growth, progress, and
general welfare of social work practice and research at the
School of Social Work of the University. Because members
of the Board of Directors of the Social Work Foundation
are officials or appointed by officials of the University, the
financial statements of the Social Work Foundation have
been blended with those of the University.
The Law Foundation is governed by a board consisting
of one ex-officio director, six appointed directors, and six
elected directors. The ex-officio director is the dean of the
School of Law of the University. The ex-officio director
appoints six directors and the Board of Directors of the Law
Alumni Association of the UNC, Inc. elects the other six
directors. The Law Foundation provides su

the university of north carolina at chapel hill
Comprehensive Annual Financial Report 2007
fiscal year ended June 30, 2007 | Chapel Hill, North Carolina
A Constituent Institution of the University of North Carolina System
and a Component Unit of the State of North Carolina
the university of north carolina at chapel hill
Comprehensive Annual Financial Report 2007
A Constituent Institution of the University of North Carolina System and a Component Unit of the State of North Carolina
Prepared by the Cont rol ler ’s Of f ice
07
June 30, 2007 | Chapel Hi l l , North Carolina
2 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 3
5 Introductory Section
6 Message from the Chancellor
9 Letter of Transmittal
14 Progress and Major Initiatives
22 Board of Trustees
22 Chancellor’s Cabinet
23 Organization Chart
25 Financial Section
26 Report of the Independent Auditor
28 Management’s Discussion and Analysis
BASIC FINANCIAL STATEMENTS
38 Statement of Net Assets
39 Statement of Revenues, Expenses, and Changes in Net Assets
40 Statement of Cash Flows
42 Statement of Financial Position — Component Units
43 Statement of Activities and Changes in Net Assets — Component Units
44 Notes to the Financial Statements
73 Statistical Section
74 Narrative to the Statistical Section
75 Net Assets by Component
76 Changes in Net Assets
79 Changes in Net Assets Adjusted for Inflation
81 Operating Expenses by Function
82 Revenue Base
82 Academic Year Tuition and Required Fees
82 Principal Revenue Payers
83 Long-term Debt
84 Summary of Ratios
90 Schedule of Specific Revenue and General Revenue Bond Coverage
92 Annual Undergraduate Educational Costs per Student
94 Admissions, Enrollment, and Degrees Earned
96 Faculty and Staff
98 Capital Assets
table of contents
4 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 5
i n t r o d u c t o r y
S e c t i o n
6 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
This University is on an incredible roll. That is a great tribute
to our students, faculty, staff, trustees, alumni, parents and
friends, as well as President Bowles and the leaders of the
UNC system and North Carolina.
This fall we enrolled the most academically prepared
first-year class from a record 20,000 applications. Our first
class of Carolina Covenant Scholars became seniors and will
graduate next May. Oliver Smithies, Excellence Professor
of Pathology and Laboratory Medicine, received the Nobel
Prize for work that has fundamentally changed the science
of genetic medicine and laid the foundation for gene
therapy research. The North Carolina General Assembly
created what will become an annual $50 million fund for
cancer research. We dedicated the FedEx Global Education
Center, a symbol of our commitment to global education.
The Carolina First Campaign, now drawing to a close, has
been a spectacular success.
Those are just a few recent major milestones. There is a
lot to celebrate in Chapel Hill because we are making prog-ress
on virtually every priority that we have set for ourselves.
Every part of the University is positioned for the kind of
distinction that we expect at Carolina. Following are a few
details about some recent developments important to the
University’s future.
State Budget Positions Carolina for Success
The North Carolina General Assembly’s most recent budget
may be the best in the University’s history. Our legislators
made a stunning series of allocations including meaningful
salary increases for faculty, a well-deserved raise for our
staff and the creation of the University Cancer Research
Fund that will help put Chapel Hill on the map as one of the
nation’s pre-eminent institutions leading cancer research.
Other highlights included significant recurring funds to sup-port
excellence in the School of Law, capital construction
for genomics and dentistry, and new faculty positions for
the nutrition institute at the Kannapolis research campus.
Enhancing the Learning Environment
This year’s first-year class is again the most academically
qualified in Carolina’s history. The average SAT score was
1302, and 77 percent of our newest students graduated in
the top 10 percent of their high school class. This year’s class
is also more diverse than ever.
Carolina leads the nation in access and affordability.
Through several key policy decisions, Carolina has become
more affordable to a larger number of North Carolinians
than ever before. Kiplinger’s Personal Finance magazine
has concluded six consecutive times that we are the best
academic value in public higher education.
Strengthening Faculty Resources
We have improved how we pay, recruit and retain faculty, this
University’s number one priority. Our goal is to take average
faculty salaries up to the 80th percentile of our peers. We are
roughly at the 50th percentile, and we may reach the 80th
percentile as early as next year. State appropriations helped
slash the gap between current salaries and the 80th percen-tile
from about $21 million last year to $11 million this year
for all tenure and tenure-track faculty. This is real progress.
More competitive salaries are helping recruitment and
retention. Last year we retained 72 percent of faculty who
07 me s sage from the chance l lor
“This University is on an incredible
roll. There is a lot to celebrate in
Chapel Hill because we are making
progress on virtually every priority
that we have set for ourselves.
Every part of the University is
positioned for the kind of distinc-tion
that we expect at Carolina.”
— James moeser
i n t r o d u c t o r y
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 7
received outside offers to whom we made counter offers. We
received almost $1 million from the recruitment and reten-tion
fund created by the Legislature at President Bowles’
request. Those dollars helped attract nine nationally known
scholars and keep six of our strongest faculty who received
outside offers.
Nurturing Research and Creativity
Total grants and contracts grew by 2.9 percent in 2007 to
over $610 million — more than double where we were a
decade ago. These gains came even as funding from the
National Institutes of Health began to shrink after its budget
doubled in the 1990s. Our strategy of investing in big ideas,
pulling together our strongest programs across the campus,
has worked. This approach has paid big dividends in genom-ics,
advanced material science and nanotechnology.
Creating the Margin for Excellence
The Carolina First Campaign, the most successful fund-rais-ing
effort in University history, ends in December 2007 well
over the $2 billion goal. We exceeded that goal last February
when we recorded the largest single pledge in UNC history,
the $50 million commitment to the School of Public Health
by Dennis and Joan Gillings. Our campaign total does not
include the magnificent $100 million gift to the John Motley
Morehead Foundation from the Gordon and Mary Cain
Foundation, nearly doubling its endowment.
The campaign has exceeded its goal of creating 200 new
endowed professorships. For students, our donors have es-tablished
544 undergraduate scholarships and 188 graduate
fellowships. Our endowment has surpassed $2 billion, over
twice what it was seven-and-a-half years ago, a result of gifts
and successful endowment management.
Transforming the
Physical Campus
Our massive building pro-gram
is adding 6 million
square feet to the main
campus. This program is
grounded in core values of
architectural quality and
sustainability. The 2000
Higher Education Bonds
brought $515 million
for new buildings and
renovations, and we more
than kept our promise to
triple this investment by
North Carolina taxpayers.
We have completed nearly
80 percent of those 49
bond projects and expect
to finish in January 2009
within two months of our
original projection — and
on budget.
Chancellor Moeser reads to a third-grade class during an elementary school visit. Through visits
across the state as part of his “Carolina Connects” initiative, the chancellor has been highlighting and
enhancing the University’s focus on education, health and economic development — the issues
identified as the most important by state citizens during listening sessions conducted by the University.
The American Society of Landscape Architects selected
Carolina as one of the most beautifully landscaped spots in the
country. That listing is among the praise affirming the charm of
mighty oaks, majestic quadrangles, brick sidewalks and other
landscaping synonymous with the UNC campus.
8 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
companies, using intellectual capital drawn from faculty
research, can take their very first steps toward full viability.
At Carolina North, we will create strategic private-sector
partnerships that will enable this University to be a more
powerful force in the state’s economy.
Bringing the World to North Carolina
The University has taken some critical steps toward
becoming a great global university, bringing the world to
North Carolina and taking North Carolina to the world.
This fall, we dedicated the FedEx Global Education Center
and convened for the first time the Global Leadership
Circle, a task force of visionary alumni and friends, to help
us develop a strategic vision for global engagement.
Ultimately, achieving our global objectives may be one
of the most important things we do for our state. North
Carolina’s competition is not South Carolina or Georgia.
It is Singapore, China and India. This University must be a
presence in the world so that North Carolina can compete
in the world.
Stepping Down But Not Leaving Carolina
During my State of the University speech in September, I
announced my decision to step down as chancellor on June
30, 2008, the end of the fiscal year. This timing gives the
Board of Trustees the opportunity to complete a search for
my successor. This is not a retirement. After a research leave,
I will return to hold the most exalted title this University can
confer: professor. The state of the University is excellent,
and the time is right for change. Susan and I have come to
love Carolina with every fiber of our being. We understand
the strong pull that Chapel Hill has on the hearts of students
and their families that lasts a lifetime. My focus this year is
on working hard to keep the University’s momentum strong.
Conclusion
2006–2007 was one of the best years ever for this University.
We made remarkable progress toward University priorities.
The North Carolina General Assembly provided exceptional
support, recognizing the role this University and public
higher education plays in advancing the state’s interests. Our
alumni and friends generously supported the Carolina First
Campaign to promote future excellence in Chapel Hill. We
also remain committed to accountability — to our legisla-tors
and the taxpayers — in all that we do.
Sincerely,
James Moeser
The total $2.1 billion building program, including projects
funded by gifts, research grants and our own revenues, is giv-ing
the campus community the physical space in which to ex-cel
in ways we have never been able before. One of America’s
most beautiful campuses is becoming even more beautiful.
Carolina Connects: Serving North Carolina
Carolina has a long and cherished tradition of service to
North Carolina, but we can and must do more. Our ongoing
work on this campus ties in naturally with the University
of North Carolina Tomorrow Commission created by the
Board of Governors and led by President Bowles. We are
continuing our “Carolina Connects” initiative, launched in
2004, to listen to the people, to understand their needs, and
to show what this University, with its statewide mission, is
doing or ought to be doing to serve them. Our focus is on
how this University touches people’s lives in all 100 counties
of North Carolina in the issues that matter most to them —
their health, the education of their children, and the
economic prosperity of their region.
Advancing Carolina North: Our Future
Carolina North will be critical to our ability to help build
the 21st Century economy for North Carolina. Finally, after
years of study and conversation, we are ready to begin. The
Board of Trustees has approved our plan for Carolina North.
Next is formal submission of that plan to the Town of
Chapel Hill. We have identified our first building for
Carolina North — an Innovation Center, where fledgling
Through the successful renovation of Memorial Hall, planning
for the Arts Common and a reorganized management model
for the arts, the University has positioned itself as a performing
arts destination for patrons and an excellent cause for donors
to support. The Memorial Hall renovation was made possible by
the state bond referendum and gifts. Progress on the Arts Com-mon
is now highly visible, with renovations under way for Person
and Gerrard halls, along with Old Playmakers, a National Historic
Landmark, and with construction on a new music building.
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 9
i n t r o d u c t o r y
Introduction
This Comprehensive Annual Financial Report includes the
financial statements for the year ended June 30, 2007, as
well as other useful information that helps ensure the
University’s accountability to the public. Responsibility for
the accuracy of the information and for the completeness
and fairness of its presentation, including all disclosures,
rests with the University’s management. We believe the in-formation
is accurate in all material respects and fairly pres-ents
the University’s financial position, revenues, expenses,
and other changes in net assets. We believe our system of
internal controls is sound and sufficient to disclose material
deficiencies in controls to the auditors and the Audit and
Finance Committee. The Comprehensive Annual Financial
Report includes all disclosures necessary for the reader to
gain a broad understanding of the University’s financial
position and results of operations for the fiscal year ended
June 30, 2007.
The accompanying financial statements present all funds
belonging to the University and its component units. While
the multi-campus University of North Carolina System’s
Board of Governors has ultimate responsibility, the
chancellor, the University’s Board of Trustees, and the Board
of Trustees of the Endowment Fund have both delegated
and statutory responsibilities for financial accountability of
the University’s funds.
The financial reporting entity for the financial statements
is comprised of the University and 11 component units.
Eight of these, although legally separate, are reported as if
they were part of the University. These include The Univer-sity
of North Carolina at Chapel Hill Foundation Invest-ment
Fund, Inc. (Investment Fund), UNC Investment
Fund, LLC (System Fund), UNC Management Company,
Inc. (Management Company), The University of North
Carolina at Chapel Hill Foundation, Inc., The Kenan-Flagler
Business School Foundation, The School of Social Work
Foundation, Inc., The School of Education Foundation, Inc.,
and U.N.C. Law Foundation, Inc.
The Investment Fund supports the University by operating
an investment fund for charitable, non-profit foundations,
associations, trusts, endowments, and funds that are
organized and operated primarily to support the University.
The System Fund was organized to allow the University, the
University of North Carolina and its constituent institutions
(UNC System), affiliated foundations, associations, trusts,
as well as endowments that support the University and the
UNC System to pool their resources and invest collectively
in investment opportunities identified, structured and
arranged by the Management Company. The Investment
Fund contributed and assigned all of its assets to the System
Fund in exchange for membership interest in the System
Fund. At year end, the Investment Fund membership inter-est
was approximately 91.8 percent of the System Fund total
membership interest.
The Management Company is organized and operated
exclusively to support the educational mission of the
University. The Management Company also provides invest-ment
management services to the University, UNC System,
and affiliated tax-exempt organizations. The purpose of the
UNC-CH Foundation, Business School Foundation, Social
Work Foundation, School of Education Foundation, and
U.N.C. Law Foundation is to aid, support, and promote
teaching, research, and service in the various educational,
scientific, scholarly, professional, artistic, and creative
endeavors of the University.
The financial statements of the Investment Fund, System
Fund, Management Company, UNC-CH Foundation, Busi-ness
School Foundation, Social Work Foundation, School
of Education Foundation, and U.N.C. Law Foundation have
been blended with those of the University.
Separate financial statements for three other component
units are reported based on Governmental Accounting Stan-dards
Board (GASB) Statement No. 39. The Medical Foun-dation
of North Carolina, Inc., The Educational Foundation
Scholarship Endowment Trust, and The University of North
Carolina at Chapel Hill Arts and Sciences Foundation, Inc.
are legally separate, non-profit, tax-exempt organizations
December 7, 2007
To Chancellor Moeser, Members of the Board of Trustees,
and Friends of The University of North Carolina at Chapel Hill:
07 l e t t er of transmi t tal
1 0 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
and are reported as discretely presented component units
based on the nature and significance of their relationship to
the University.
Other related foundations and similar non-profit corpora-tions
for which the University is not financially accountable
are not part of the accompanying financial statements. The
University of North Carolina at Chapel Hill is a constituent
institution of the multi-campus University of North Caro-lina
System, which is a component unit of the State of North
Carolina and an integral part of the State’s Comprehensive
Annual Financial Report.
Economic Condition and Outlook
In 2006, the North Carolina economy grew more rapidly
than the national average for the second consecutive year.
This used to be a normal trend except during national reces-sions,
but the state’s growth pace trailed the national average
from 1999–2004.
According to a June 7, 2007, release from the Bureau of
Economic Analysis (BEA) of the U.S. Department of
Commerce, the state’s real gross domestic product (“real
GDP,” the total value of all the goods and services produced
within North Carolina after adjusting for price changes) was
a record $323.2 billion in 2006, an increase of 4.2 percent
from 2005. This was 2.9 percent of the U.S. total of $11.3
trillion, an increase of 3.4 percent from 2005. North
Carolina’s output ranked 11th among all states. It was just
below Georgia’s $331.1 billion and just above Virginia’s
$318.7 billion.
Per capita real GDP was a record $36,489 in North
Carolina in 2006. This ranked 20th in the U.S. between
Texas at $36,920 and Nebraska at $36,441. It was 97 percent
of the national average of $37,714. Delaware was first at
$59,288 and Mississippi was last at $24,062. South Carolina
was 45th at $29,642.
On September 20, 2007, the BEA reported that personal
income in North Carolina in the second quarter was
running at a record seasonally adjusted annual rate of
$304.7 billion. That was an increase of 7.3 percent from the
second quarter of 2006. This was above the national average
increase of 6.4 percent for the same period.
The U.S. Census Bureau estimated the total population of
North Carolina at 8.9 million people in 2006. That was an
increase of 10.1 percent since 2000, well above the national
average of 6.4 percent.
Non-farm payroll employment has finally returned to
strong growth after being below the January 2001 peak of
more than 3.9 million jobs until November 2005. According
to a Bureau of Labor Statistics (BLS) release of September
25, 2007, there were over 4 million such jobs in North
Carolina in August 2007. That was an increase of 66,700
jobs or 1.65 percent from a year earlier.
Total employment, which includes agricultural workers
and the self-employed, reached 4.3 million in August. That
was up 32,700 people, or 0.8 percent from a year earlier.
All of these people employed and the record levels of
income have been reflected in the North Carolina budget.
After a surplus of $1.1 billion in fiscal 2006, the increase in
revenues to $19.5 billion in fiscal 2007 resulted in a budget
surplus of $1.3 billion.
All the concern about subprime mortgage defaults and
rising foreclosures in the national media are not very
relevant to North Carolina. We have much less expensive
housing than the national average and a far higher pro-portion
of people paying their mortgages as agreed. The
declines in interest rates should help North Carolina again
grow faster than the national average in calendar year 2008.
Progress and Major Initiatives
Carolina’s progress, priorities, and major initiatives during
fiscal 2006–2007 reflected the University’s vision of
becoming the nation’s leading public university. Following
this letter are recent highlights.
Financial Information
INTERNAL CONTROL STRUCTURE
The University’s Finance and Administration Division
establishes and maintains an effective system of internal
control. One objective of an internal control structure is to
provide management with reasonable, although not abso-lute,
assurance that assets are safeguarded against loss from
unauthorized use or disposition. Another objective is to
ensure that transactions are executed in accordance with ap-propriate
authorization and recorded properly in the finan-cial
records to permit the preparation of financial statements
in accordance with generally accepted accounting principles.
Organizational structure, policies, and procedures have
been established to safeguard assets, ensure the reliability of
accounting data, promote efficient operations, and ensure
compliance with established governmental laws, regulations
and policies, University policies, and other requirements of
sponsors to whom the University is accountable.
As a recipient of federal financial awards, the University
is responsible for ensuring compliance with all applicable
laws and regulations. A combination of state and University
policies and procedures, integrated with the University’s
system of internal controls, provides for this compliance.
As an integral part of the State of North Carolina’s Single
Audit, the University is subject to an annual examination
by the Office of the State Auditor of its federal financial as-sistance
programs and federal cost-reimbursement contracts
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 1 1
in accordance with U.S. Office of Management and Budget
Circular A-133, Audits of State and Local Governments,
and Non-Profit Organizations.
The University determined a course of action as part of
higher education’s response to the Sarbanes-Oxley Act and
has implemented practices to enhance the internal con-trol
structure. The University’s focused effort on financial
controls provides a more proactive and broader approach
in identifying and resolving potential limitations on sound
internal control through a self-assessment process, devel-opment
of a professional code of ethics, targeted campus
training sessions, special reviews, improved documentation
of internal controls, and timely and useful responses to
questions from campus units. A financial controls manager
leads efforts to strengthen and maintain sound internal
controls. The Audit and Finance Committee of the Board of
Trustees maintains an Audit Committee charter consistent
with higher education standards.
BUDGETARY CONTROLS
The University is responsible for controlling its budget and
using the funds to fulfill its educational, research, and public
service missions. It is also responsible for planning, develop-ing,
and controlling budgets and expenditures within autho-rized
allocations in accordance with University, state, and
federal policies and procedures. The University maintains
budgetary controls to ensure compliance with provisions
embodied in the annual appropriated budget approved
by the North Carolina General Assembly, and as further
directed by the Board of Governors. Project-length financial
plans are adopted for capital projects.
After the budget has been approved by the chancellor
and the Board of Governors, the University follows an
established system of budgetary controls. Finance and
Administration issues periodic interim budget statements
to department heads to guide them in managing their
budget allocations. Monthly financial reports are provided
on each fund to individual managers responsible for the
fund. Financial reports are also provided to the state. When
actual conditions require changes to the budget, revisions
are prepared and these revisions are appropriately approved
and communicated to those affected. Changes to the budget
are approved at the University level and/or the state level
as required. Based on the state’s management flexibility
legislation, the University has received delegated authority
for designated budget changes. The University maintains
an encumbrance accounting system as another method to
ensure that imposed expenditure constraints are observed.
DEBT ADMINISTRATION
To ensure the appropriate mix of funding sources is
utilized, the University established a debt policy, which is
continuously used by management as a tool to evaluate
the University’s financing needs for its capital investments
within the framework of portfolio management practices.
To fulfill its mission, the University makes capital invest-ments,
driving capital decisions that affect the University’s
credit. Appropriate financial leverage serves a useful role
and should be considered a long-term component of the
University’s balance sheet. Just as investments represent an
integral component of the University’s assets, debt is viewed
to be a continuing component of the University’s liabilities.
Debt, especially tax-exempt debt, provides a low-cost source
of capital for the University to fund capital investments and
achieve its mission and strategic objectives.
The debt strategies, combined with management
judgment, provide the framework by which decisions will
be made regarding the use and management of debt. The
objectives of the debt policy are:
n Identify projects eligible for debt financing. Using
debt to fund mission-critical projects will ensure that debt
capacity is optimally used to fulfill Carolina’s mission.
Projects that relate to the core mission will be given priority
for debt financing; projects with associated revenues will
receive priority consideration as well.
n Maintain Carolina’s favorable access to capital.
Management’s determination of the timing of capital proj-ects
will not be compromised by the University’s access to
capital sources, including debt. Management will use and
issue debt to ensure timely access to capital.
n Limit risk of University debt portfolio. The University
will manage debt on a portfolio basis. The University’s con-tinuing
objective to achieve the lowest cost of capital will be
balanced with the goal of limiting exposure to market shifts.
n Manage the University’s credit rating to maintain the
highest acceptable credit. This practice will permit the Uni-versity
to continue to issue debt and finance capital projects at
favorable interest rates while meeting strategic objectives. The
University will limit its overall debt to a level that will main-tain
an acceptable credit rating with the bond rating agencies.
In meeting these objectives, the University has adopted
strategies and procedures for the management of its debt.
These strategies include the following:
n Mission-based capital planning. Provide framework
with a link to mission to evaluate and prioritize debt-eligible
projects.
n Core ratios. Adopt a set of core ratios to guide capital
planning and ensure central oversight of University-wide
leverage levels.
n Financial instruments. Provide management with
appropriate debt vehicles based on borrowing needs.
n Asset/Liability management. Manage outstanding
debt and future debt-financing needs within the framework
of sound portfolio management practices.
1 2 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
The University has $785,306,805 of outstanding long-term
bonds and $192,414,000 of commercial paper at June
30, 2007. The bonds were issued to finance the construction
and/or renovation of many campus facilities including
essential new research buildings, major new cultural facilities
that will benefit the local community and state, undergradu-ate
residence halls, student family housing, parking facilities,
and utilities infrastructure. Principal and interest for the
bonds are payable from the general revenues of the Univer-sity
— excluding state appropriations, tuition, restricted
gifts and restricted income from endowment investments —
and net revenues generated by the operations of the debt-financed
facilities.
The UNC-CH Foundation, which is part of the Univer-sity’s
financial reporting entity, also adheres to a debt policy
that maximizes the utility of the foundation’s financial
resources to continue to provide current and future support
to the University.
CASH MANAGEMENT
The cash management plan of the University provides guid-ance
to ensure control and deposit of receipts, appropriate
management of disbursements, and investment of funds to
maximize earnings on the investment of cash and minimize
non-productive cash balances. State law requires that state-appropriated
funds be deposited and invested with the State
Treasurer with investment earnings accruing to the state.
Other resources, such as gifts, contract and grant awards,
auxiliary revenues, and student activity fees are not
appropriated by the state. These funds, except for fees
from services of health care clinics, must be deposited and
invested with the State Treasurer with investment earnings
accruing to the University. Endowment, debt service, fees
from services of health care clinics, and other designated
funds are invested by the University in accordance with its
investment policies.
The University administers a short-term investment pool
for funds not required to be on deposit with the State Trea-surer.
The investment pool is administered in conjunction
with cash receipts and disbursing requirements to minimize
idle cash and to generate current income without loss of
capital at a rate of return no less than the State Treasurer.
Earnings are distributed to participating funds.
The objective in managing disbursements is to maintain
funds in interest-bearing accounts for the longest appropri-ate
period of time while ensuring that payments for goods
and services are made timely. Disbursement cycles are
established to coincide with this objective. The University
uses the state’s cash management control system to improve
cash flow by electronically recording cash receipts and
disbursements for funds deposited with the State Treasurer.
Other electronic processes have been developed for the
receipt and disbursement functions to provide efficient and
effective processes.
RISK MANAGEMENT
Risk has traditionally been viewed as something to be
avoided or eliminated with only a negative outcome.
Increasingly in today’s environment, there is greater aware-ness
that responsible risk taking leads to a competitive
advantage and can maximize stakeholder value.
To optimize the benefits of risk and minimize their costs,
the University has taken a more enterprise-wide approach
to its risk management programs by holistically addressing
its operational, financial, compliance, strategic and reputa-tion
risks. This enterprise risk management ensures that
decisions that trade value and risk are made on an informed
basis and are aligned with our risk tolerance and strategy.
The risks we face constantly change so our strategies must
remain fluid. This ongoing process allows us to prioritize
and efficiently use our risk management resources.
Included within this enterprise risk management frame-work
is our responsibility to mitigate any business
interruption that adversely affects our education, research
and public service missions. An effective campus-wide
Business Continuity Plan is central to this responsibility.
The University employs a full-time business continuity
officer position to lead this campus-wide planning process
and develop a more formal program.
Insurable risks are addressed in several ways, including
participation in various state-administered risk pools,
purchase of commercial insurance and self retention of
certain risks. Refer to Note 15 of the Notes to the Financial
Statements for more detailed information concerning the
University’s insurance programs.
Other Information
AUDITS
State law, federal guidelines, and certain bond covenants
require that the University’s accounting and financial
records be audited by the Office of the State Auditor each
year. The University’s internal auditors also perform fiscal,
compliance, and performance audits. The reports resulting
from these audits are shared with University management.
Internal and external audit reports are provided to the Audit
and Finance Committee of the Board of Trustees.
The audit of the University’s federal financial assistance
programs is performed by the Office of the State Auditor
in conjunction with the statewide Single Audit. The
accounting and financial records of The University of North
Carolina at Chapel Hill Foundation Investment Fund, Inc.,
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 1 3
The University of North Carolina at Chapel Hill Founda-tion,
Inc., UNC Investment Fund, LLC, UNC Manage-ment
Company, Inc., The Kenan-Flagler Business School
Foundation, The School of Social Work Foundation, Inc.,
The School of Education Foundation, Inc., The U.N.C.
Law Foundation, Inc., the University of North Carolina at
Chapel Hill Arts and Sciences Foundation, Inc., The Medi-cal
Foundation of North Carolina, Inc., the Educational
Foundation Scholarship Endowment Trust, WUNC Radio,
and the Athletic Department are each audited by a public
accounting firm in addition to the State Auditor review. All
audit reports are available for public inspection.
CERTIFICATE OF ACHIEVEMENT
The Government Finance Officers Association of the
United States and Canada (GFOA) awarded a Certificate of
Achievement for Excellence in Financial Reporting to the
University for its comprehensive annual financial report for
the fiscal year ended June 30, 2006. This was the 12th con-secutive
year that the University has been honored with this
prestigious award. To receive a certificate of achievement,
a government unit must publish an easily readable and ef-ficiently
organized comprehensive annual financial report.
This report must satisfy both generally accepted accounting
principles and applicable legal requirements.
A Certificate of Achievement is valid for one year. We
believe our current comprehensive annual financial report
continues to meet the Certificate of Achievement Program’s
requirements and we are submitting it to the GFOA to
determine its eligibility for another certificate.
ACKNOWLEDGMENTS
Preparation of this Comprehensive Annual Financial Report
in a timely manner would not have been possible without
the coordinated efforts of the University community, with
special assistance from the Chancellor’s Office, the Office of
the Executive Vice Chancellor and Provost, Research and
Economic Development, Student Affairs, Information Tech-nology
Services, University Advancement, University Rela-tions,
Institutional Research, the Office of Scholarships and
Student Aid, the Department of Athletics, and Dr. James F.
Smith, Adjunct Professor of Business Administration in the
Kenan-Flagler Business School. In addition, the Office of
the State Auditor provided invaluable assistance.
Richard L. Man
Vice Chancellor for Finance and Administration
The University of North Carolina at Chapel Hill has
received the award for reporting excellence for the
past twelve years.
1 4 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
Carolina keeps making major progress
with key priorities in aspiring to
become the nation’s leading public
university. The first class of Carolina
Covenant Scholars is poised to gradu-ate
in May 2008. Students, faculty
and staff are achieving excellence
through teaching, research and public
service. Faculty research funding
continues to rise. The physical campus
is undergoing an unprecedented
transformation. The generosity of
alumni and friends put the Carolina
First Campaign over its $2 billion
goal 10 months ahead of schedule.
And the University is demonstrating
outstanding leadership in American
higher education and life-changing
public service to the people of
North Carolina.
Following are a sampling of recent
highlights demonstrating significant
progress across several areas of the
University during fiscal 2006–2007.
Carolina
making major
acomplishments
fiscal 2006–2007
07 progre s s and major ini t iat ive s
i n t r o d u c t o r y
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 1 5
Carolina Covenant
Helping Deserving Low-Income Students
Carolina offers talented students the opportunity to learn in
a high-quality academic environment. Through the Carolina
Covenant and an excellent overall financial aid program,
the University is making college possible for qualified
students regardless of their financial means. The University’s
policies and practices protect access and affordability —
core values at Carolina that have long benefited North
Carolina and its citizens.
Under the Carolina Covenant, announced in 2003, quali-fied
low-income students admitted under regular admissions
standards become eligible to graduate debt-free.
This concept began a movement in U.S. higher education.
Other universities and at least two states have begun about
40 similar initiatives. These campuses include Brown,
Harvard, MIT and Stanford, as well as Michigan and Virginia.
Many of these programs, like Carolina’s, respond to rapidly
changing demographics and social needs, such as rising high
school dropout and poverty rates.
The University will graduate its first class of Carolina
Covenant Scholars next May. To date, about 1,400 students
have benefited from the program, which includes a
mentoring component featuring volunteer faculty and older
Covenant students.
Eligible Covenant students agree to work on campus 10
to 12 hours weekly in a federal work-study job, and UNC
meets their remaining needs through federal, state, Uni-versity
and other privately funded grants and scholarships.
Beginning in fall 2005, students and their families had to
be at or below 200 percent of the federal poverty level to be
eligible for the program. That currently covers a family of
four with an annual income of about $40,000.
In fall 2006, the University hosted a conference, “The
Politics of Inclusion: Higher Education at a Crossroads,”
seeking national solutions to the complex issues surrounding
access and affordability. More than 150 state and federal
policymakers, economists, researchers, foundation and
business leaders and educators from across the country
exchanged ideas intended to help shape national policy and
practice. The Carolina Covenant has been a springboard for
two innovative programs funded by the Jack Kent Cooke
Foundation to help low-income students in community
college and high school settings. North Carolinians are
directly benefiting from both efforts.
The Honors Program provides students with a rich academic
experience through special seminars and undergraduate course
sections. The Carolina First Campaign recently received a $5
million gift creating five endowed professorships in the College
of Arts and Sciences, helping to expand the Honors Program.
The Carolina Covenant,
a first for a major public
university, provides a
debt-free education for
qualified low-income
students. To date, about
1,400 students have
benefitted from the
program, which sparked
a national movement in
U.S. higher education.
1 6 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
Carolina First
Surpasing $2 Bilion Ahead of Schedule
The Carolina First Campaign is a comprehensive, multi-year
private fund-raising campaign — the largest and most suc-cessful
in the University’s history — to support the vision
of Carolina becoming the nation’s leading public university.
Each year, private funding and investment income provide
some 20 percent of the University’s budget — creating
Carolina’s margin of excellence.
As of September 2007, Carolina First had raised more
than $2.23 billion, surpassing its final $2 billion goal 10
months early. Alumni and friends have exceeded the goal
of creating 200 new distinguished professorships, as well as
544 new undergraduate scholarships and 188 new graduate
student fellowships (toward a goal of 1,000). The push for
student scholarships includes a new emphasis on merit-based
awards. The campaign, which ends in December 2007
and is led by volunteer alumni, also supports research, stra-tegic
initiatives, facilities and the University’s endowment.
As the campaign winds down, one goal is to meet a special
$100 million target set for faculty resources last February.
The campaign has consistently exceeded projections,
raising a record $241.2 million in private gifts during fiscal
2006. That was the first time that the University had raised
more than $200 million in a single year. The University has
had three consecutive years of record-setting support,
topping $192.5 million in 2005 and $192 million in 2004.
A $50 million commitment from Dennis and Joan
Gillings to support the School of Public Health put Carolina
First over the $2 billion goal in February 2007. That marked
the single largest commitment in University history. Dennis
Gillings is the chairman and chief executive officer of Quin-tiles
Transnational Corp., a Research Triangle Park-based
pharmaceutical services company. Joan Gillings has had
careers in public health and commercial real estate.
Other 2007 highlights included a $21.3 million grant
from the Bill & Melinda Gates Foundation to develop effec-tive,
inexpensive drugs to treat late-stage African sleeping
sickness and visceral leishmaniasis.
Commitments supporting students included a donation
from High Point businessman Earl N. “Phil” Phillips Jr. to
create study-abroad-in-Asia scholarships for up to 50 under-graduates
annually in the College of Arts and Sciences, as
well as $4 million from the William R. Kenan Jr. Charitable
Trust to create four scholarships for undergraduate music
students each year in the college.
Newly graduated Carolina students take in the excitement
of the traditional Commencement ceremony in Kenan Stadium.
The University awards nearly 7,000 bachelor’s, master’s,
doctoral and professional degrees each year.
From left, Paul Fulton, Chancellor Moeser, Joan Gillings, Dennis
Gillings and Charlie Shaffer applaud after the cutting of a cer-emonial
cake that marked passing the Carolina First Campaign’s
$2 billion goal in February 2007. Joan and Dennis Gillings com-mitted
$50 million — the single largest pledge in the University’s
history — to the School of Public Health. Fulton, a trustee, and
Shaffer are two of the volunteer co-chairs for the campaign.
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 1 7
And, in a move to help more high school students realize
their ambition to attend college, Carolina was one of 10
higher education institutions joining the Jack Kent Cooke
Foundation in a $10 million partnership to create advising
programs to help low-income students enroll in college. The
network of programs created through the partnership will be
headquartered at UNC-Chapel Hill, which will receive $1
million over four years to create the Carolina College Advis-ing
Corps. This effort is placing recent Carolina graduates as
college advisers in 18 partner high schools across the state.
Along with creating music scholarships, the Kenan trust
gave $4 million to support a new College of Arts and Sci-ences
music building now under construction on Columbia
Street between Hanes Art Building and Abernethy Hall.
Commitments to building projects also included $5 million
to the college from alumnus Max Carrol Chapman Jr., a
Wall Street businessman, to help fund a new building in the
Carolina Physical Science Complex.
Commitments in 2007 helped the University create
18 endowed professorships, as well as 114 undergraduate
scholarships and graduate fellowships.
Campus Master Plan
Guiding Unprecedented Growth
Today, the campus
is undergoing an
unprecedented
physical transforma-tion
made possible
in part by North
Carolinians’ over-whelming
approval
of the $3.1 billion
bond referendum
for higher educa-tion.
The referen-dum,
approved in
November 2000,
was the nation’s larg-est
higher education bond package.
The bonds have meant more than $515 million for reno-vations
and new buildings so 21st century students at Caro-lina
can learn in a 21st century environment. Also guided by
a visionary campus master plan for growth now rapidly com-ing
to life, the University is investing funds from non-state
sources, including private gifts and overhead receipts from
faculty research grants, for other buildings essential to excel-lence.
The resulting capital campaign exceeding $2.1 billion
is among the largest at any major American university.
As of September 2007, the University had completed 72
projects, or 37 percent of the total capital program since
2000. Another 38 projects were under construction and 55
other projects were in design.
The Higher Education Bond Referendum portion of the
building program includes 49 projects. Thirty-six have been
completed, 12 are under construction and one is in design.
This program is scheduled to be completed in January 2009 —
within two months of the original schedule.
Recently completed projects include:
W. Lowry and Susan S. Caudill Laboratories and Max
C. Chapman Jr. Hall — the first phase of the Carolina
Physical Science Complex. The $205 million complex is the
largest construction project in the University’s history. It is
replacing outdated, deteriorating buildings with state-of-the-art
facilities. The goal is to provide an innovative learning
atmosphere for students and open the door for integrated
collaboration among Carolina’s world-renowned scientists.
FedEx Global Education Center, which brings several key
international activities under one roof and advances a major
academic priority. The building is creating a vibrant hub of
At left, beams stand out in the foreground as workers take the
next steps toward making progress with a new construction
project. At right, students enjoy new gathering spaces to study
and relax in the FedEx Global Education Center, one of the
newest buildings to open on campus. The building program is
adding 6 million square feet to the main campus.
1 8 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
international studies, academic services, research, public
service and cultural exchange. It was completed in spring
2007 and was dedicated Oct. 12, 2007, University Day.
Projects under construction include:
North Carolina Cancer Hospital, which will become a
world-class hospital for cancer patients and their families
from North Carolina and beyond. The new hospital, part of
the UNC Health Care System, will bring complete cancer
care for patients and research facilities into one building
and serve as the new clinical home for the UNC Lineberger
Comprehensive Cancer Center, one of only 38 such National
Cancer Institute-designated centers in the United States.
The North Carolina General Assembly approved $180
million in funding for the new hospital to replace a facility
originally built in the 1950s as a tuberculosis sanatorium.
Tentatively scheduled to open in late 2009, the hospital will
provide North Carolinians with complete clinical cancer
care and research facilities in one building.
Genetic Medicine Building, which will become one of
the largest facilities on campus. The building represents a
cooperative effort between the schools of pharmacy and
medicine to offer unique opportunities for interdisciplinary
collaboration. Among these are projects to develop novel
approaches to deliver gene therapy. The seven-story
structure will contain five laboratory floors and will house
researchers from pharmacy and three medical school
departments: pharmacology, genetics, and biochemistry
and biophysics.
Using sustainable practices is a key component of the
capital program. For example, the School of Nursing
achieved Leadership in Energy and Envi-ronmental
Design (LEED) certification
from the U.S. Green Building Council
in 2007. The school’s Carrington Hall
addition was the first project in the UNC
system to register for LEED certification.
Features include a “green” roof surround-ing
a small patio where plantings capture
70 percent of the stormwater.
Faculty Research
Finding Solutions
Faculty attract federal and private research
dollars to support efforts to cure diseases,
improve technology, bring innovation to
industries such as biotechnology and spin
off new businesses that create jobs and
diversify North Carolina’s economy.
Total research grants and contracts
rose by almost 3 percent in fiscal 2007 to
exceed $610 million — more than double
the level from a decade ago.
Cancer is a major area of emphasis en-hanced
with the construction of the North
Carolina Cancer Hospital, which will
provide a clinical home for the Lineberger
Comprehensive Cancer Center. The North
Carolina General Assembly recently created
a new fund for cancer research for the Uni-versity
at a permanent level of $50 million
annually. Last year, Chancellor Moeser set
a goal for the University to reach $1 billion
in sponsored research by 2015.
In October 2007, Oliver Smithies,
Excellence Professor of Pathology and
Carolina’s recent successes include nurturing growth in faculty research
funding — by almost 3 percent in fiscal 2007 to exceed $610 million. Faculty
attract federal and private research dollars to support efforts to cure diseases,
improve technology, bring innovation to industries such as biotechnology and
spin off new businesses that create jobs and diversify the state’s economy.
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 1 9
Laboratory Medicine, was
named a co-recipient of this
year’s Nobel Prize in Physiol-ogy
or Medicine. Smithies
was cited for his role in
introducing gene modifica-tions
in mice using embry-onic
stem cells. According
to the Nobel committee,
“gene targeting in mice
has pervaded all fields of
biomedicine. Its impact on
the understanding of gene
function and its benefits to
mankind will continue to
increase over many years to
come.” Smithies is the first
full-time UNC faculty mem-ber
to win a Nobel Prize.
Other ongoing research initiatives at Carolina include
efforts to tackle challenges such as genome sciences, which
is unraveling the mysteries of DNA and the human genome.
Carolina has committed at least $245 million over a decade
to be at the forefront of the genomics revolution. Since
2000, the University has maintained a strategy of targeted
investment in “big idea” research themes, knitting together
existing strengths in various areas to create broad, interdisci-plinary
new thrusts.
Recent examples of key new interdisciplinary
initiatives include:
n The “Roadmap for Medical Research” initiative,
intended to focus future National Institutes of Health
funding in 21 broad areas of concentration. The University
established a Roadmap Office to position the campus for
the highest level of success with this NIH initiative, which
encourages researchers to attack difficult problems using
interdisciplinary collaboration and sophisticated computa-tional
techniques to create quick translations to patient care.
As a result of the work of the Roadmap Office and the
strength of Carolina’s faculty and their interdisciplinary
work, Chapel Hill received 11 grants in the 2006 competi-tion,
the highest number to date. Carolina’s efforts with
this program are among the most successful in the country.
Previous projects funded include the Carolina Center of
Nanotechnology Excellence, which marries expertise in
nanotechnology with patient research at the Lineberger
Comprehensive Cancer Center.
The Renaissance Computing Institute (RENCI) addresses
problems spanning the sciences and engineering, the arts,
the humanities and commerce. RENCI brings together
technologies and communities to respond to disasters —
from storm surges, hurricanes and floods in eastern North
Carolina to landslides in the mountains — that require
responses no one organization can address alone. RENCI
was established in partnership with Duke and N.C.
State universities. Its work fosters collaborations across
the state, including with other UNC system campuses and
state government.
n The Carolina Entrepreneurial Initiative, funded
with a five-year, $3.5 million grant from the Ewing Marion
Kauffman Foundation is being matched two-to-one by the
University. Carolina is one of seven Kauffman Foundation-designated
“Entrepreneurial Universities,” chosen through
a national competition. UNC is deploying new programs to
create a surge of entrepreneurship among students, faculty
The Renaissance Computing Institute is testing the unmanned
aerial vehicle shown below. Equipped with a digital camera
and programmed to receive transmissions from low-power
sensors in remote locations, the vehicle can gather data from
areas too dangerous or remote to be reached by humans.
It can compile sensor data to pinpoint the location of flood
damage or mudslides.
Oliver Smithies,
Excellence Professor
of Pathology in the
School of Medicine,
became the first full-time
Carolina faculty
member to win a No-bel
Prize in 2007. He
was one of three re-cipients
of the Nobel
Prize in Physiology or
Medicine for his role
in introducing gene
modifications in
mice using embry-onic
stem cells. The
resulting techniques
led to Smithies’ lab
producing the first
animal model of
cystic fibrosis.
2 0 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
and staff, including a new minor in entrepreneurship in the
College of Arts and Sciences. The program is led by a team
managed by the Frank Hawkins Kenan Institute of
Private Enterprise.
Data that reflect the current economic impact of
technological developments resulting from faculty research
include the number of patents, spin-off companies, jobs
and licensed technology. In 2006, UNC was awarded 21
patents; started five new companies, bringing the total to 36;
licensed 43 inventions; and received about $2.2 million in
revenue generated by licensed technology.
Spin-off companies resulting from UNC discoveries
include Liquidia Technologies, a 2004 start-up to
commercialize inventions from the laboratories of Joe
DeSimone, William R. Kenan Jr. distinguished professor of
chemistry and chemical engineering at Carolina and N.C.
State. Liquidia has used a silicon wafer to create molds for
making nanoparticles for drug delivery. Possibilities include
developing custom nanoparticles for targeted delivery of
anticancer drugs. Liquidia’s technology also helped the
University land one of eight NIH “nanocancer” grants.
Carolina North
Planning for Future Growth
The University’s future contributions to the North Carolina
economy one day will include Carolina North, to be built
on about 900 acres of UNC-owned land less than two
miles from main campus. Carolina North is envisioned as a
vibrant, compact, mixed-use academic campus.
The primary driver for Carolina North is the University’s
mission — education, research, public service — and a
responsibility to help meet the state’s economic development
needs. Carolina North will be a “growth campus,” one that
can provide space for University activities that no longer fit
on the main campus and to develop partnerships with the
private sector to accelerate economic development.
An ecological assessment is helping guide the University’s
efforts toward sustainability principles and goals at Carolina
North. Other input includes a report from the Leadership
Advisory Committee, which included community represen-tatives,
that made recommendations for guiding principles
for development. That report guided a series
of draft concept plans presented to the
local community in meetings from March to
September 2007.
The University’s Board of Trustees
approved a final draft concept plan in
September 2007, setting the stage for the
University’s submission of a plan for
Carolina North to local governments.
The University has identified the first
building for Carolina North — an Innovation
Center, where fledgling companies, using
intellectual capital drawn from faculty
research, can take their very first steps toward
full viability.
The 85,000-square-foot Innovation
Center will provide much-needed space and
resources for researchers who have intellectual
property with commercial potential to turn those ideas into
products and businesses.
The Innovation Center will be built as a partnership with
a private developer, Alexandria Real Estate Equities of Pasa-dena,
California, which specializes in this type of business
accelerator. Although the center will be located on Uni-versity-
owned land at Carolina North, the building will be
privately owned and will pay taxes to the local community.
Academic Reputation
Highlighting Quality
Several national publications regularly publish rankings
that listed Carolina prominently in categories ranging from
academic quality to affordability to international presence.
Recent highlights include:
n 1st among the 100 best U.S. public colleges and
universities that offer the best combination of top-flight
academics and affordable costs as ranked by Kiplinger’s Per-sonal
Finance magazine. 1st for six consecutive times since
Kiplinger’s began these periodic surveys in 1998. Kiplinger’s
analysis stressed academic quality, as well as cost and financial
aid offerings, and cited the success of the Carolina Covenant
program, which provides a debt-free education to qualified
Students study amid the beauty of the Carolina campus. The Class of 2011 —
3,895 students — comes from 94 North Carolina counties, 45 states and 22
countries. More than 87 percent graduated with a grade-point average of 4.0
or higher. Nearly 77 percent were in the top 10 percent of their high school
class, 40 percent were among the top 10 students and 12 percent were
valedictorians or salutatorians. The average SA T score was 1302.
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 2 1
low-income students. Only school in Kiplinger’s survey that
meets 100 percent of each student’s financial need.
n 5th best public university in U.S. News & World
Report’s 2008 “Best Colleges” guidebook for the seventh
consecutive year. 1st among public campuses for the third
consecutive year. 9th overall in “Great Schools, Great
Prices,” based on academic quality and the net cost of
attendance for a student who received the average level of
need-based financial aid.
n One of 6 public universities ranking in the top 25 for
all nine measures used in “The Top American Research
Universities,” produced in 2007 by The Center for Measur-ing
University Performance at Arizona State University.
Evaluates top research universities with at least $20 million
in annual federal research funding using quantitative
measures such as endowment assets, private giving, faculty
awards, doctorates granted and SAT/ACT range. In the
seven years of these studies, UNC is one of four universities
(with Berkeley, UCLA and Michigan) in the top 25 on all
nine measures.
n Among 25 “New Ivy” campuses in the 2007 Kaplan/
Newsweek “How to Get into College Guide.” Includes
schools with first-rate academic programs fueling their rise
in national stature. Based on admissions statistics and in-terviews
with administrators, students, faculty and alumni.
Reports Newsweek: “If a moviemaker needs an idyllic
setting for a film about college life, Chapel Hill might just
take the prize.”
n A “best value” among 81 schools chosen for
“America’s Best Value Colleges, 2006 Edition” by The
Princeton Review/Random House for outstanding academ-ics,
relatively low costs and generous financial aid packages.
2nd appearance in a row for UNC.
n 1st among major U.S. universities — for the 6th
time in 8 years — in the percentage of African-American
students in the first-year class, according to The Journal
of Blacks in Higher Education. The 470 black first-year
students enrolled at UNC in fall 2006 marked a 13 percent
increase from 2005. At 12.3 percent of the total class, this
was the second-highest percentage reported by the Journal
since its annual survey began in 1993.
n 2nd among top public research universities recording
the highest rate of undergraduates studying abroad in
2004-2005, according to a report published by the Institute
of International Education.
n 8th among U.S. universities for the number of alumni
volunteering for the Peace Corps in 2006 — up from 11th
the previous year. Seventy-seven UNC graduates are rep-resenting
the United States abroad. Since the inception of
the Peace Corps, 966 alumni have joined its ranks, making
UNC the 25th largest producer of volunteers all time.
n Degree programs or specialty areas from several
schools and the College of Arts and Sciences appeared prom-inently
in the 2008 U.S. News and World Report’s “Amer-ica’s
Best Graduate Schools” issue. Highlights included:
School of Public Health, tied for 2nd, master’s and doctoral
programs; School of Medicine, 2nd overall for primary care,
20th for research; nursing master’s programs in the School of
Nursing and School of Public Health, 5th and tied for 12th,
respectively; and Kenan-Flagler Business School’s master of
business administration degree program, tied for 18th.
n Kenan-Flagler Business School ranked 15th in Busi-nessWeek
magazine’s list of the best undergraduate business
programs. That was 5th best among programs at public
universities and included ratings of 7th for academic quality,
10th for student satisfaction and straight “A+” grades in
teaching quality, facilities and services, and job placement.
n Kenan-Flagler appeared in several other best MBA pro-gram
lists: The Wall Street Journal, 8th based on a survey of
corporate recruiters; BusinessWeek (17th); Forbes magazine
(14th); The Princeton Review and Forbes.com, 1st for foster-ing
entrepreneurship campuswide; BusinessWeek, executive
MBA program 5th; Financial Times, executive education
programs 12th in the United States and 21st in the world.
In 2006,
the Univer-sity
set new
goals for
four- and
six-year
graduation
rates. Those
goals were
to match the
six-year rates
of Berkeley,
UCLA and
Michigan by
2010. Last
year, theirs
stood at
87 percent
compared
to UNC’s
84 percent.
The four-year
goal is
to improve
from 71
percent to
75 percent
by 2010. This
year, that
rate rose
by nearly 2
percentage
points to
73 percent.
2 2 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
i n t r o d u c t o r y
board of t r u s t e e s
chancelo r ’ s c a binet
Nelson Schwab III
Chair, Charlotte, NC
Jean Almand Kitchin
Vice Chair, Scotland Neck, NC
Russell M. Carter
Secretary, Wilmington, NC
Timothy B. Burnett
Greensboro, NC
James C. Moeser
Chancellor
Richard A. Baddour
Director of Athletics
Nancy K. Davis
Associate Vice Chancellor
for University Relations
Douglas S. Dibbert
President, General Alumni
Association
Archie W. Ervin
Associate Provost for Diversity
and Multicultural Affairs
Kevin M. FitzGerald
Special Assistant to the Chancellor
for State Government Relations
Bernadette Gray-Little
Executive Vice Chancellor
and Provost
John G. B. Ellison, Jr.
Greensboro, NC
Paul Fulton, Jr.
Winston-Salem, NC
Barbara R. Hyde
Memphis, TN
Karol V. Mason
Atlanta, GA
Roger L. Perry, Sr.
Chapel Hill, NC
A. Donald Stallings
Rocky Mount, NC
Richard T. Williams
Charlotte, NC
Robert W. Winston III
Raleigh, NC
Eve M. Carson
Ex-Officio, Chapel Hill, NC
Margaret A. Jablonski
Vice Chancellor for Student Affairs
Brenda W. Kirby
Secretary of the University
Matthew G. Kupec
Vice Chancellor for
University Advancement
Madeline G. Levine
Interim Dean,
College of Arts and Sciences
Richard L. Mann
Vice Chancellor for Finance and
Administration
Ann E. Penn
Equal Opportunity/ADA Officer
Daniel A. Reed
Senior Adviser for Strategy
and Innovation and
Executive Director, RENCI
William L. Roper
Vice Chancellor for Medical Affairs
and Dean, School of Medicine
Michael R. Smith
Vice Chancellor for Public Service
and Engagement and Dean,
School of Government
Leslie Chambers Strohm
Vice Chancellor
and General Counsel
Tony G. Waldrop
Vice Chancellor for Research
and Economic Development
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 2 3
i n t r o d u c t o r y
the university of north carolina at chapel hill
organization chart 07
Vice Chancellor and
General Counsel
Leslie Chambers
Strohm
Director of Athletics
Richard A. Baddour
Board of Trustees Chair
Nelson Schwab I
Chancellor
James C. Moeser
Executive Vice
Chancellor and Provost
Bernadette Gray-Little
Vice Chancellor for
Student Affairs
Margaret A. Jablonski
Vice Chancellor for
Finance and
Administration
Richard L. Mann
Senior Adviser for
Strategy and Innovation
Daniel A. Reed
Equal Opportunity/
ADA Officer
Ann E. Penn
Vice Chancellor for
Medical Affairs
William L. Roper
Vice Chancellor for
Research and
Economic Development
Tony G. Waldrop
Vice Chancellor for
University
Advancement
Matthew G. Kupec
Internal Auditor
Phyllis C. Petree
2 4 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
i n t r o d u c t o r y
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 2 5
f i n a n c i al
S e c t i o n
2 6 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
if ni nt ar on dc iuaclt o r y
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 2 7
2 8 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
if ni nt ar on dc iuaclt o r y
$ Thousands
0
5,000,000
4,000,000
3,000,000
2,000,000
6,000,000
1,000,000
Total Assets
Net Assets
Total Liabilities
5,297,318 3,415,869
4,476,028 2,928,002
1,548,026
2007 2006
Capital Gifts, Grants, and Endowments
Non-Operating Revenues, net
Operating Revenues
Increase in Net Assets
Operating Expenses
1,881,449
$ Thousands
0
2,500,000
2,000,000
1,500,000
1,000,000
3,000,000
500,000
1,304,444
904,863
226,842
1,948,282
1,241,511
743,554
137,490
1,802,432
320,123
2007 2006
487,867
INTRODUCTION
Management’s discussion and analysis provides an
overview of the financial position and activities of The
University of North Carolina at Chapel Hill (the “Univer-sity”)
for the fiscal year that ended June 30, 2007, with
comparative information for the fiscal year ended June 30,
2006. Management has prepared the discussion and analysis
to be read in conjunction with the financial statements and
accompanying note disclosures.
The University is a constituent institution of the multi-campus
University of North Carolina System (UNC Sys-tem),
a component unit of the State of North Carolina and
an integral part of the State’s Comprehensive Annual Financial
Report (CAFR). The financial reporting entity for the
financial statements is comprised of the University and 11
component units. Eight component units are reported as if
they were part of the University, and three are reported as
discretely presented component units based on the nature
and significance of their relationship to the University. The
reader may refer to Note 1A for detail information on the
financial reporting entity.
FINANCIAL HIGHLIGHTS
The University’s financial position at June 30, 2007,
remained solid with total assets of $5.3 billion. Net assets,
which represent the residual interest in the University’s
assets after deducting liabilities, were $3.4 billion at
June 30, 2007. The University’s net assets increased by
$487.9 million in fiscal 2006–2007, when operating,
non-operating, and other changes are included. A
comparison of the total assets, liabilities, and net assets at
June 30, 2007, and June 30, 2006, and a comparison of the
major components of the changes in net assets for the two
fiscal years are presented below:
Management’s
Di scussion and Analysis
s tat ement of n e t a se t s
s tat ement of r evenues , e x penses ,
and changes i n n e t a se t s
07
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 2 9
Net assets increased 16.7 percent on June 30, 2007, over
the prior year. Total assets increased 18.3 percent and total
liabilities rose 21.5 percent for the same period. Operating
revenues increased at a lower rate than operating expenses
in 2006–2007 over the prior year, 5.1 percent and 8.1 per-cent,
respectively. Net non-operating revenues and expenses
increased 21.7 percent in 2006–2007 over the prior year.
The growth in state appropriations — 11.9 percent — was
significant. Investment income growth remained substantial
with a 53.5 percent increase in 2006–2007 over the prior
year. Research funding, fund raising for operational and
capital needs, and construction funding through the North
Carolina Higher Education Bond Referendum of 2000
continued to be positive factors in the sustained financial
well-being of the University.
USING THE FINANCIAL STATEMENTS
The financial statements have been prepared in accordance
with generally accepted accounting principles as prescribed
by the Governmental Accounting Standards Board (GASB),
which establishes standards for external financial reporting
for public colleges and universities. The financial statements
are presented on a consolidated basis to focus on the
University as a whole. The full scope of the University’s
activities is considered to be a single business-type activity
and accordingly, is reported within a single column in the
basic financial statements.
The University’s CAFR includes the following three
financial statements.
• Statement of Net Assets
• Statement of Revenues, Expenses, and Changes in Net Assets
• Statement of Cash Flows
Management’s discussion and analysis provides
information regarding each of these financial statements.
CONDENSED STATEMENT OF NET ASSETS
The Statement of Net Assets presents the financial
position of the University at the end of the fiscal year,
includes all assets and liabilities of the University and segre-gates
the assets and liabilities into current and non-current
components. Net assets represent the difference between
total assets and total liabilities and are one indicator of the
University’s current financial condition. The following table
summarizes the University’s assets, liabilities, and net assets
on June 30, 2007, and June 30, 2006.
Current Assets and Liabilities
The Statement of Net Assets shows that working capital,
which is current assets less current liabilities, was $535.6
million at June 30, 2007, an increase of 2.8 percent, or $14.5
million, over the previous year. The Statement of Net Assets
details the current asset and current liability categories.
Endowment and Restricted Investments
Endowment investments increased 21.5 percent during
2006–2007, and were $1.39 billion at June 30, 2007, and
$1.15 billion at June 30, 2006, and include permanent
endowments, funds internally designated as endowments
and similar funds such as gift annuities and charitable trusts.
Net assets of endowment and similar funds were $1.37
billion at June 30, 2007, and $1.12 billion for the prior year.
The endowment assets are invested with The University
of North Carolina at Chapel Hill Foundation Investment
Fund, Inc. (“Investment Fund”), which is reported as a
governmental external investment pool in the financial state-ments.
The Investment Fund is a 501(c)(3) non-profit cor-poration
established to support the University by operating
an investment pool for charitable, non-profit foundations,
associations, trusts, endowments, and funds that are
organized and operated primarily to support the University.
The investment objective is to earn an average real total
percent
2007 2006 Change
(dollars in thousands)
Assets
Current assets $1,007,274 $912,751 10.4
Non-current assets
Endowment investments and
restricted investments 2,001,979 1,604,529 24.8
Capital assets, net 2,082,829 1,874,486 11.1
Other non-current assets 205,236 84,262 143.6
Total Assets 5,297,318 4,476,028 18.3
Liabilities
Current liabilities 471,718 391,685 20.4
Non-current liabilities
Funds held in trust
for pool participants 588,099 326,419 80.2
Long-term liabilities 789,568 797,852 (1.0)
Other non-current liabilities 32,064 32,070 0.0
Total Liabilities 1,881,449 1,548,026 21.5
Net Assets
Invested in capital assets,
net of related debt 1,211,805 1,119,040 8.3
Restricted 1,586,491 1,283,449 23.6
Unrestricted 617,573 525,513 17.5
Total Net Asets $3,415,869 $2,928,002 16.7
ase t s , liabilit ies , a n d n e t a se t s
3 0 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
proved investment policy that is designed to capture a
significant portion of the upside returns during bull markets
while protecting the down side during bear markets.
Capital Assets and Debt Management
An essential aspect for enhancing and maintaining the
University’s academic, research, and service programs and
its residential life is the development and renewal of its
capital assets. The University Board of Trustees approved
the campus master plan in March 2001 to guide the
University’s physical development in the 21st Century. The
master plan and subsequent modifications mesh the critical
pieces needed for smart growth in the 21st Century —
transportation, parking, housing, utilities, and sustainability —
with the program needs of a growing campus. The master
plan combines the practical requirements of a research
university with the beauty that inspired its founders. The
University expects continued growth in the future, including
advancing plans for Carolina North, a satellite campus on
property about two miles north of main campus.
A summary of changes in capital assets is disclosed in
Note 5. Capital assets, net of accumulated depreciation, at
June 30, 2007, and June 30, 2006, were as follows:
The University is engaged in a $2.1 billion capital
construction program that began in 2000 and will continue
through the next several years. The 165 projects in the
capital program include major capital renewal of existing
buildings and infrastructure to address both deferred
maintenance and programmatic needs. The 72 completed
return of at least 5.5 percent per year, net of all fees, over
rolling five- and 10-year periods. The earnings distribution
policy is to provide a stable source of spending support that
is sustainable over the long term while preserving the pur-chasing
power of the endowment investments. The earnings
distribution rate was established at 5 percent of the previous
year’s market value, with annual increases based on infla-tionary
factors. Each year’s distribution is subject to a
4 percent floor and a 7 percent cap based on estimated fiscal
year-end market value.
Restricted investments of $609.9 million at June 30,
2007, include funds of $565.9 million of affiliated entities
that are neither part of the University’s reporting entity nor
reported discretely but do invest through the System Fund.
The remaining component is bond reserves and related
funds of $44 million.
Most of the University’s endowment investments are
currently managed within the System Fund, a pooled
investment fund vehicle. The System Fund is designed to
provide long-term, stable rates of return on the invested as-sets
through the use of a highly diversified portfolio strategy.
As reported by UNC Management Company, Inc., the
investment return on the endowment assets invested in the
System Fund for fiscal 2006–2007 was 23.4 percent. The
investment return for fiscal 2005–2006 was 19.2 percent.
The System Fund return of 23.4 percent for 2006–2007
significantly outperformed the Strategic Investment Policy
Portfolio (“SIPP”) return of 16.7 percent. The System
Fund’s return also exceeded the 70 percent S&P 500 / 30
percent Lehman Brothers Bond Index (“70/30”) return of
16.1 percent for the year.
The continuing strong investment performance has
increased the three-year annualized return to 19.3 percent
at June 30, 2007. This three-year return measure compares
well with the corresponding measure of 14.9 percent for the
SIPP and 9.4 percent for the 70/30. For the five years ended
June 30, 2007, the System Fund earned a 15.3 percent
annualized return compared to 12.3 percent for the SIPP
and 9 percent for the 70/30.
The System Fund has also outperformed its long-term
objective of real return, after inflation, of 5.5 percent for
each of the periods noted above as well as for longer time
periods. For the 10-, 15-, and 20-year time periods ended
June 30, 2007, the System Fund returned 12.1 percent, 12.7
percent, and 12.1 percent respectively. Comparatively, the
CPI plus 5.5 percent has been 8.3 percent, 8.3 percent, and
8.7 percent respectively for the corresponding time periods.
The System Fund is very well positioned in the current
environment and remains invested according to the ap-percent
2007 2006 Change
(dollars in thousands)
Capital Assets
Construction in progress $535,332 $585,216 (8.5)
Land and other
non-depreciable assets 97,030 93,980 3.2
Buildings 1,156,417 910,763 27.0
General infrastructure 191,413 190,898 0.3
Machinery and equipment 102,637 93,629 9.6
Total $2,082,829 $1,874,486 11.1
capital a se t s
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 3 1
projects total $764 million, or 37 percent of the
$2.1 billion capital construction program. The 38 projects
under construction total $614 million or 30 percent, and
the 55 projects under design represent $683 million or 33
percent. Capital funds resulting from North Carolina
Higher Education Bonds continue to provide essential re-sources
for construction. The University is directly investing
in its capital construction program using a variety of other
funding sources including general revenue bonds, cost
reimbursements from research grants, internal reserves,
and private gifts.
The University continues to use its commercial paper
program to provide low-cost bridge financing for capital
projects until gifts are received or in anticipation of an
external bond issue. Commercial paper debt was $192.4
million at June 30, 2007, and $117.4 million at June 30,
2006. The University is currently planning to issue a
long-term bond in December 2007, to refund a significant
portion of outstanding commercial paper and to provide
additional funds for capital projects.
The commercial paper program and the general revenue
bonds allow the University to use a central bank concept
for funding capital projects. The University issues fixed and
variable rate debt externally and blends the average borrow-ing
rate to allocate debt costs to individual capital projects
and campus divisions. This concept provides a stable and
flexible debt-funding source for capital projects.
The University maintains a combination of variable and
fixed rate debt, consistent with its debt management policy.
The effective, combined interest rate for variable and fixed
rate debt was 4.72 percent for fiscal 2006–2007 and
4.65 percent for fiscal 2005–2006. The interest rate on the
commercial paper program for fiscal 2006–2007 was 3.6
percent and for fiscal 2005–2006 was 3 percent. Interest
rates on the University’s variable rate, long-term bonds were
3.59 percent for fiscal 2006–2007 and 2.93 percent for fiscal
2005–2006. Interest rates on fixed rate, long-term bonds
are disclosed in Note 8B of the financial statements. The
University’s financial strength allowed it to achieve ratings
of AA+/Aa1 by the national rating agencies.
The University’s debt policy uses two key ratios to
measure debt capacity, financial health, and credit quality.
The expendable resources to debt ratio measures the
availability of expendable assets to cover long-term
obligations should the University be required to repay all of
its obligations immediately. The debt service to operations
ratio measures the University’s ability to repay annual princi-pal
and interest associated with all outstanding debt and its
impact on the overall budget. Each ratio is compared to the
University’s debt policy standard and the appropriate peer
group comparison for fiscal 2005-2006 (the latest available
numbers). The debt policy floor for expendable resources to
debt is 1.5 times, and the metrics indicate the University has
sufficient expendable resources to pay its long-term debt
obligations. The debt policy ceiling for debt service to oper-ations
is 4 percent, and the metrics indicate the University’s
annual debt service requirements are a reasonable proportion
of the operating budget.
Times
2007
0
3.0
2.5
2.0
1.5
1.0
0.5
2.3
1.5
2.4
1.8
2.2
2006 2005 University
Debt Policy
(Minimum)
Moody’s Public
Universities
Aaa & Aa1, 2006
Percent
2007
4.5
4.0
0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
4.0 4.1
2.2
3.2 3.2
2006 2005 University
Debt Policy
(Maximum)
Moody’s Public
Universities
Aaa & Aa1, 2006
expendable resources to debt
debt services to operations
expendable r e sources t o d ebt
debt services t o o perat ions
3 2 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
Other Non-current Assets
Other non-current assets were $205.2 million at June 30,
2007, and $84.3 million at June 30, 2006, a 143.6 percent
increase. The change in other non-current assets from the
prior year included a $58.4 million increase in restricted
resources due from the primary government. Restricted
resources due from the primary government include receiv-ables
for designated capital construction projects funded
from proceeds from statewide higher education bonds and
other state resources. The increase resulted from $59.6
million additional resources in statewide higher education
bonds due for capital construction projects.
Non-current Liabilities
Non-current liabilities were $1.4 billion at June 30, 2007,
and $1.2 billion at June 30, 2006, and include funds held
in trust for the University’s affiliated foundations and other
campuses in the UNC System and their affiliates of $588.1
million and $326.4 million, respectively. These entities are
not part of the University’s financial reporting entity and are
not discretely presented, but the entities do invest through
the System Fund. The increase in funds held in trust of
80.2 percent over the prior year resulted from strong invest-ment
performance, participant contributions, and new
participants in the System Fund.
Net Assets
Net assets represent the value of the University’s assets after
liabilities are deducted. The University’s net assets were
$3.4 billion at June 30, 2007, an increase of $487.9 million
over the prior year. Net assets invested in capital assets, net
of related debt, represents the University’s total investment
in capital assets, net of outstanding debt obligations related
to those capital assets. To the extent debt has been incurred
but not yet expended for capital assets, such amounts are
not included. Non-expendable restricted net assets include
endowment and similar assets whose use is limited by
donors or other outside sources and as a condition of the
gift, the principal is to be maintained in perpetuity.
Expendable restricted net assets include resources in which
the University is legally obligated to spend the resources in
accordance with restrictions provided by external parties.
Unrestricted net assets are not subject to externally imposed
stipulations; however, most of these resources have been
designated for particular academic, research, or other
programs, as well as capital projects.
18%
32%
35%
15%
Invested in
Capital Assets,
net of related debt
$1,211,805
Restricted
Non-expendable
$496,448
Unrestricted
$617,573
Restricted
Expendable
$1,090,043
$ Thousands
2 0 0 7 n e t a se t s : $ 3 , 4 1 5 , 8 6 9
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 3 3
CONDENSED STATEMENT OF REVENUES,
EXPENSES, AND CHANGES IN NET ASSETS
The Statements of Revenues, Expenses, and Changes in Net
Assets present the University’s results of operations. The
statements for the fiscal year ended June 30, 2007, and the
prior year are summarized as follows:
Operating Revenues
The operating revenues represent resources generated by
the University in fulfilling its instruction, research, and
public service missions. Student tuition and fees are
reported net of the scholarship discount, which was $51.1
million for fiscal 2006–2007 and $45.3 million for the prior
year. Total net revenues from student tuition and fees
increased 7.5 percent over the prior year. The 2006–2007
tuition rates increased 7.8 percent for undergraduate
resident students, 6.5 percent for undergraduate non-resi-dents,
13.8 percent for graduate residents, and 2.8 percent
for graduate non-residents.
Operating revenues from grants and contracts increased
2.3 percent over the prior year as reflected in the financial
statements. Discussion of grants and contracts in terms of
awards provides another useful perspective. The University
is among the nation’s leading public research universities,
with a diversified portfolio of research that attracted more
than $610 million in sponsored program funding during
fiscal 2006–2007, a 2.9 percent increase over the previous
year. As federal funding for research stalls and competition
for investment from other sources increases, the University
was able to sustain growth in awards.
While competition for funding from the National
Institutes of Health (NIH) funding has increased signifi-cantly,
the University share of those funds improved 6.6
percent to $314 million. Health-related research continues
to receive the bulk of research dollars, with the medical
school bringing in $298 million in 2006–2007, almost two-thirds
from the NIH. The School of Public Health received
$115 million, and the College of Arts and Sciences received
$95 million. Interdisciplinary research centers, institutes
percent
2007 2006 Change
(dollars in thousands)
Operating Revenues
Student tuition and fees, net $210,651 $195,882 7.5
Grants and contracts 566,887 554,047 2.3
Sales and services, net 521,653 485,627 7.4
Other 5,253 5,955 (11.8)
Total Operating Revenues 1,304,444 1,241,511 5.1
Total Operating Expenses 1,948,282 1,802,432 8.1
Operating Loss (643,838) (560,921) 14.8
Non-operating Revenues
(Expenses)
State appropriations 492,471 440,070 11.9
Non-capital gifts and grants 136,960 136,212 0.5
Investment income 318,442 207,423 53.5
Other net non-operating (43,010) (40,151) 7.1
Income Before Other Changes 261,025 182,633 42.9
Capital grants
and appropriations 171,738 68,053 152.4
Capital gifts 15,662 13,368 17.2
Additions to permanent
endowments 39,442 56,069 (29.7)
Increase in Net Assets 487,867 320,123 52.4
Net Assets – July 1 2,928,002 2,607,879 12.3
Net Asets – June 30 $3,415,869 $2,928,002 16.7
Fiscal year 2006-2007 revenues and other changes total $2,479,159 and expenses
total $1,991,292. Fiscal year 2005-2006 revenues and other changes total $2,162,706,
and expenses total $1,842,583..
universit y o perat ions
3 4 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
and other units that do not fall under one particular school
accounted for $138 million. The University averages 120
technology transfer agreements each fiscal year, providing
resources of $2.5 to $4 million in royalties. The University is
ranked 10th in the nation in patent strength.
Sales and services include the revenues of campus
auxiliary operations such as student housing, student stores,
student health services, the utilities system, and parking and
transportation, as well as revenues from patient services
provided by the professional health-care clinics. Other reve-nues
represent operating resources not separately identified
and include, for example, an assessment to the Investment
Fund to support administrative services.
Operating Expenses
The University’s operating expenses were $1.9 billion for
the fiscal year ended June 30, 2007, an increase of 8.1
percent over the prior year. The operating expenses are
reported by natural classification in the financial statements
and by functional classification in the notes to the financial
statements (Note 12). The following table illustrates the
University’s operating expenses by functional classification
and by natural classification:
The following graph illustrates the University’s operating
expenses by function.
57%
24%
4%
9%
3%3%
Scholarships and Fellowships $56,662
Depreciation $80,827
Utilities $60,727
Salaries and
Benefits
$1,122,269
Supplies and Materials
$165,704
Services $462,093
$ Thousands
$ Thousands
4% 3%
4%
5%
5%
6%
16%
24%
32%
1%
Student Services $25,865
Institutional Support $76,188
Student Financial Aid $56,662
Academic Support
$97,776
Public Service $90,025
Auxiliary
Enterprises
$459,660
Instruction
$624,128
Depreciation $80,827
Research $312,160
Operations and
Maintenance of Plant
$124,991
percent
2007 2006 Change
(DOLARS in thousands)
Instruction $624,128 $595,319 4.8
Research 312,160 285,646 9.3
Public Service 90,025 85,330 5.5
Academic Support 97,776 86,229 13.4
Student Services 25,865 23,957 8.0
Institutional Support 76,188 71,609 6.4
Operations and
Maintenance of Plant 124,991 111,720 11.9
Student Financial Aid 56,662 54,105 4.7
Auxiliary Enterprises 459,660 424,042 8.4
Depreciation 80,827 64,475 25.4
Total Operating Expenses $1,948,282 $1,802,432 8.1
percent
2007 2006 Change
(DOLARS in thousands)
Salaries and Benefits $1,122,269 $1,042,452 7.7
Supplies and Materials 165,704 152,911 8.4
Services 462,093 432,212 6.9
Scholarships and Fellowships 56,662 54,105 4.7
Utilities 60,727 56,277 7.9
Depreciation 80,827 64,475 25.4
Total Operating Expenses $1,948,282 $1,802,432 8.1
The following graph illustrates the University’s operating
expenses by the natural classification.
operat ing e x penses by function
operat ing e x penses by n ature
2007 operating expenses by function: $1,948,282
2007 operating expenses by nat u r e : $ 1 , 9 4 8 , 2 8 2
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 3 5
Operating expense categories reported by natural
classification generally increased at a comparable rate to
total operating expenses. The 25.4 percent increase in depre-ciation
expenses in 2006–2007 over the prior year resulted
from the completion of several major buildings. The $2.1
billion capital construction that began in 2000 has resulted
in an increased depreciable capital asset base of $2.3 billion
at June 30, 2007, an increase of 76.7 percent from five years
earlier. Operations and maintenance of plant expenses
increased 11.9 percent to keep pace with additional facili-ties.
Academic support expenses increased 13.4 percent in
large part from additional resources provided for
information technology needs.
Non-operating Revenues and Expenses
State appropriations, non-capital gifts and grants, and
investment income are considered non-operating because
they were not generated by the University’s principal,
ongoing operations. For example, state appropriations were
not generated by the University but were provided to help
fund operating expenses.
State appropriations were $492.5 million for fiscal
2006–2007, an 11.9 percent increase. The University re-ceived
budget increases totaling $25.9 million to fund salary
and benefit increases, $10.9 million for enrollment increases
and program enhancements, $8.5 million for operating costs
for new facilities, $5.9 million for the Renaissance Comput-ing
Institute, and $1.2 million for other purposes.
Non-capital gifts and grants remained stable and include
expendable gifts and federal awards that are not considered
to be operating revenues. Net investment income of
$318.4 million, an increase of 53.5 percent over 2005–2006,
includes income and realized and unrealized gains and is
net of realized and unrealized losses and investment
management fees. An investment return of 23.4 percent by
the System Fund, a 21.5 percent increase in endowment
investments, and increased levels of short-term investments
contributed to the higher level of revenues. For detail
discussion, the reader may refer to the Endowment and
Restricted Investments section of the Management’s
Discussion and Analysis.
Total Operating and Non-operating Revenues
Operating and non-operating revenues such as state
appropriations, non-capital grants, non-capital gifts, and
investment income are used to fund University operations.
The following chart illustrates the University’s operating and
non-operating revenues, which total $2.3 billion for fiscal
year 2006–2007.
$ Thousands
Sales and Services, net
$324,432
Non-Operating
Revenues
$947,873
Federal
Grants
and
Contracts
$429,059
Patient Services, net
$197,221
Interest Earnings
on Loans
$679 (0%)
State Appropriations
$492,471
Investment Income
(net of Investment Expense)
$318,442
Non-capital Gifts, net
$74,291
Non-capital Grants
$62,669
Non-Operating
Revenues: Breakdown
Other Operating
Revenues
$4,574 (0%)
Student Tuition and Fees, net
$210,651
Non-governmental
Grants and Contracts
$92,572
State and Local
Grants and Contracts
$45,256
19%
15%
9%
9%
4%
2%
42%
22%
3%
3%
14%
Other Changes in Net Assets
Capital grants and appropriations of $171.7 million for fiscal
2006–2007 and $68.1 million for fiscal 2005–2006 are from
statewide higher education bond proceeds and state
appropriations for capital construction projects. Capital gifts
of $15.7 million for fiscal 2006–2007 and $13.4 million for
the prior year resulted from fund-raising efforts and also
provided funding for construction projects. Non-expendable
gifts and funds from the state’s program to match gifts for
distinguished professorship endowments resulted in addi-tions
to permanent endowments of $39.4 million during
fiscal 2006–2007 and $56.1 million during fiscal 2005–2006.
2 0 0 7 t o tal r evenues by s o u r c e : $ 2 , 2 5 2 , 3 1 7
3 6 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
ECONOMIC OUTLOK
Management believes the University is financially well-positioned
for the future and will continue to maintain and
generate sufficient resources to successfully fulfill its teach-ing,
research, and service missions. The fiscal improvement
during 2006–2007 enhanced the University’s solid financial
foundation. The University’s tuition levels are appealing
to prospective students and provide important resources
for key University priorities including salaries and gradu-ate
teaching assistant stipends. The University’s support
from the state continues to improve, sponsored awards are
a proven and reliable source in support of the University’s
research mission, philanthropic efforts have demonstrated
outstanding success, and investment returns provide a stable
stream of earnings. The University’s strong debt credit
ratings of Aa1 and AA+ allow it to obtain competitive
financing for capital construction.
Tuition rates increased for fiscal 2007–2008 by 7.2 percent
for undergraduate residents, 6.9 percent for undergraduate
non-residents, 12.2 percent for graduate residents, and 2.8
percent for graduate non-residents. The University’s academ-ic
standing allows it to continuously attract top students.
The University’s CAFR Statistical Section includes historical
data for important metrics including the ratio of accepted
applications as a percentage of total applications and the ratio of
enrolled students as a percentage of accepted applications.
The Governor and the General Assembly of North
Carolina have continued to demonstrate strong financial
support for higher education. The budgeted funding level
for state appropriations for fiscal 2007–2008 totals $539.7
million, which represents an increase of 9.6 percent over fis-cal
2006–2007 actual state appropriations. This level of state
appropriation funding includes faculty and staff pay and
benefit increases of $26.4 million. The fiscal 2007–2008 pay
increase of 4 percent for faculty and staff is the fourth
consecutive year of base salary increases for all employees.
An additional 1 percent pay increase was authorized as
incentive funding tied to the University’s strategic goal of
competing with peer campuses to improve competitive sal-ary
levels for faculty. Other budget changes included $20.9
million for enrollment increases and program enhance-ments,
$9.7 million for operating costs for new facilities, and
$9.8 million in net budget reductions. Additional budget
reductions are not anticipated for fiscal 2007–2008.
External funding from contracts and grants increased to
$610 million in fiscal 2006–2007. The growth in research
occurs as the University continues to work with the local
community on plans for Carolina North, the research
campus to be located near the main campus. The first com-ponent
of Carolina North will be the Innovation Center.
More than an incubator, the facility will provide space for
research start-ups and capital management teams to attract
seed capital and accelerate research into the marketplace. In
2008, the University also plans to open a Nutrition Research
Institute as part of the North Carolina Research Campus, a
public-private partnership, in Kannapolis, N.C.
The General Assembly made a major commitment to
research by creating the University Cancer Research Fund,
which will invest $25 million in 2007–2008, $40 million
the following year and then an annual investment of
$50 million. The funds will support cancer research and
patient care through the School of Medicine, Lineberger
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 3 7
Comprehensive Cancer Center, and the UNC Health Care
System, which is currently building the North Carolina
Cancer Hospital.
State appropriations and tuition are key resources for
faculty salaries. The University’s goal is to take average fac-ulty
salaries, now at approximately the 50th percentile of the
peer group of institutions, to the 80th percentile, possibly
as soon as fiscal 2008–2009. Faculty retention is essential
to the objective of maintaining the quality of education
at the University. Faculty attrition through retirements or
resignations is a key challenge. Other challenges will require
resources as well. For the fall semester of fiscal 2007–2008
and for the first time in the University’s history, student
enrollment exceeded 28,000.
Resources to meet these important needs will be a key
factor, and the University’s diverse revenue base will be
invaluable. It is the University’s goal to secure $1 billion in
external research funding by 2015. Management believes
the investment performance of its endowment fund will
continue to earn attractive returns and provide impor-tant
resources for University operations. The University’s
investment management operation is separately organized
as the UNC Management Company, Inc., the non-profit
corporation organized and operated as a 501(c)(3) entity,
to provide investment management services and administra-tive
services to the University and to the other campuses of
the UNC System and their affiliated non-profit foundations
as appropriate. Management believes this structure will con-tinue
to enhance the ability to attract and retain investment
professionals and increase the pool of funds and resulting
investment returns.
The Carolina First Campaign is the largest fund-raising
drive in University history to support the vision to become
the nation’s leading public university. The campaign will
conclude December 31, 2007, and surpassed its $2 billion
goal on February 21, 2007. Private gifts and grants, along
with state matching funds, exceeded $250 million in fiscal
2006–2007, marking the fourth consecutive year that the
University surpassed its previous high. New gifts, pledges,
and other commitments raised the campaign total to $2.17
billion. The goal of the Carolina First Campaign, which
began in July 1999, was increased to $2 billion in October
2005 from the initial goal of $1.8 billion.
The University’s diverse and sound revenue streams,
its endowment, and its capital asset base provide a strong
financial foundation and provide resources to continue the
excellent teaching, research, and public service endeavors
provided to students, citizens, and other constituents. Sup-port
from the State of North Carolina, the ability to attract
top prospective students, vibrant research funding, superior
investment performance, a dynamic capital construction
program, and an exceptional fund-raising campaign all
contribute to a positive outlook for the University. The
University’s commitment to sound financial and budgetary
planning, protection and enhancement of its endowed and
physical assets, as well as its observance of compliance and
control standards, support a solid financial future for
the University.
3 8 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
if ni nt ar on dc iuaclt o r y
As s e t s
Current Assets
Cash and cash equivalents $168,157,134
Restricted cash and cash equivalents 399,669,945
Short-term investments 164,752,029
Restricted short-term investments 103,568,237
Receivables, net (Note 4) 145,707,432
Due from State of North Carolina component units 2,712,529
Inventories 19,505,876
Notes receivable, net (Note 4) 3,200,439
Total current assets 1,007,273,621
Non-current Assets
Restricted cash and cash equivalents 79,492,910
Receivables, net (Note 4) 23,672,776
Restricted due from primary government 61,645,345
Endowment investments 1,392,068,332
Restricted investments 609,911,090
Notes receivable, net (Note 4) 32,106,309
Investment in joint venture 8,318,917
Capital assets, non-depreciable (Note 5) 632,361,431
Capital assets, depreciable, net (Note 5) 1,450,467,489
Total non-current assets 4,290,044,599
Total assets 5,297,318,220
L i a b i l i t i e s
Current Liabilities
Accounts payable and accrued liabilities (Note 6) 96,318,357
Due to primary government 94,172
Due to State of North Carolina component units 4,226,441
Deposits payable 1,681,775
Funds held for others 5,178,573
Unearned revenue 54,659,696
Interest payable 4,330,711
Short-term debt (Note 7) 192,414,000
Long-term liabilities — current portion (Note 8) 112,814,609
Total current liabilities 471,718,334
Non-current Liabilities
U. S. government grants refundable 32,064,079
Funds held in trust for pool participants 588,098,709
Long-term liabilities (Note 8) 789,568,351
Total non-current liabilities 1,409,731,139
Total liabilities 1,881,449,473
Total assets less liabilities $3,415,868,747
Ne t As s e t s
Invested in capital assets, net of related debt $1,211,804,330
Restricted for:
Non-expendable (Note 10) 496,448,465
Expendable (Note 10) 1,090,042,641
Unrestricted 617,573,311
Total net assets $3,415,868,747
s tat ement of n e t a se t s J u n e 3 0 , 2 0 0 7
The accompanying notes to the financial
statements are an integral part of this statement.
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 3 9
f i n a n c i a l
s tat ement of r evenues , e x penses ,
and changes i n n e t a se t s F o r t h e f i s c a l y e a r e n d e d J u n e 3 0 , 2 0 0 7
Revenues
Operating Revenues
Student tuition and fees, net (Note 11) $210,651,518
Patient services, net (Note 11) 197,221,518
Federal grants and contracts 429,058,855
State and local grants and contracts 45,255,927
Non-governmental grants and contracts 92,571,877
Sales and services, net (Note 11) 324,431,513
Interest earnings on loans 679,573
Other operating revenues 4,573,793
Total operating revenues 1,304,444,574
Expenses
Operating Expenses
Salaries and benefits 1,122,269,124
Supplies and materials 165,703,903
Services 462,092,772
Scholarships and fellowships 56,662,461
Utilities 60,727,000
Depreciation 80,826,849
Total operating expenses 1,948,282,109
Operating loss (643,837,535)
Non-operat i n g Re v e n u e s ( E x p e n s e s )
State appropriations 492,471,029
Non-capital grants 62,668,734
Non-capital gifts, net (Note 11) 74,291,599
Investment income
(net of investment expense of $4,595,146) 318,441,609
Interest and fees on capital asset related debt (42,926,147)
Other non-operating expenses (84,091)
Net non-operating revenues 904,862,733
Income before other revenues 261,025,198
Capital appropriations 52,887,775
Capital grants 118,849,967
Capital gifts 15,661,798
Additions to endowments 39,441,876
Increase in net assets 487,866,614
N e t A s s e t s
Net assets — July 1, 2006 2,928,002,133
Net assets — June 30, 2007 $3,415,868,747
The accompanying notes to the financial
statements are an integral part of this statement.
4 0 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
if ni nt ar on dc iuaclt o r y
s tat ement of c a s h flows F o r t h e f i s c a l y e a r e n d e d J u n e 3 0 , 2 0 0 7
The accompanying notes to the financial
statements are an integral part of this statement.
CASH FLOWS FROM OPERA TING ACTIVITIES
Received from customers $1,306,740,163
Payments to employees and fringe benefits (1,111,960,376)
Payments to vendors and suppliers (701,767,039)
Payments for scholarships and fellowships (56,662,461)
Loans issued (8,907,039)
Collection of loans 7,906,231
Other payments (5,691,002)
Net cash used by operating activities (570,341,523)
CASH FLOWS FROM NON- C AP I TAL FINANCING ACTIVITIES
State appropriations 492,471,029
Non-capital grants 64,163,318
Non-capital gifts 74,695,006
Additions to endowments 39,441,876
Related activity agency receipts 266,636,823
Net cash provided by non-capital financing activities 937,408,052
CASH FLOWS FROM C AP I TAL f i n a nci n g AND RELA TED FINANCING ACTIVITIES
Proceeds from capital debt 76,180,965
Capital grants 60,415,641
Capital appropriations 52,887,775
Capital gifts 13,003,044
Acquisition and construction of capital assets (301,452,335)
Principal paid on capital debt and leases (43,344,021)
Interest and fees paid on capital debt and leases (43,675,710)
Net cash used by capital financing
and related financing activities (185,984,641)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of investments 944,361,874
Investment Income 70,176,913
Purchase of investments and related fees (1,062,535,927)
Net cash used by investing activities (47,997,140)
Net increase in cash and cash equivalents 133,084,748
Cash and cash equivalents, July 1, 2006 514,235,241
Cash and cash equivalents, June 30, 2007 $647,319,989
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 4 1
The accompanying notes to the financial
statements are an integral part of this statement.
R e con c i l i at ion of n e t op e r at i n g r e v e n u e s
( e x p e n s e s ) t o n e t ca s h u s e d b y o p e r at i n g act i v i t i e s
Operating loss ($643,837,535)
Adjustments to reconcile operating loss to net cash
used by operating activities
Depreciation expense 80,826,849
Allowances, write-offs, and amortizations 90,404
Changes in assets and liabilities
Receivables, net (21,797,719)
Inventories (2,078,379)
Notes receivable, net (1,688,719)
Accounts payable and accrued liabilities (5,854,779)
Due to primary government (96,536)
U.S. government grants refundable (5,699)
Unearned revenue 19,095,916
Compensated absences 5,004,674
Net cash used by operating activities ($570,341,523)
Non-ca s h i n v e s t i n g , ca p i ta l , a n d f i n a nci n g act i v i t i e s
Assets acquired through assumption of a liability $966,892
Assets acquired through a gift $2,658,754
Change in fair value of investments $143,345,326
Reconci l i at i o n o f ca s h a n d ca s h e q u i valents
Current Assets
Cash and cash equivalents $168,157,134
Restricted cash and cash equivalents 399,669,945
Non-current assets
Restricted cash and cash equivalents 79,492,910
Total cash and cash equivalent — June 30, 2007 $647,319,989
4 2 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
if ni nt ar on dc iuaclt o r y
The accompanying notes to the financial
statements are an integral part of this statement.
As s e t s
Current assets
Cash and cash equivalents $9,781,745 $9,116,463 $40,889,829
Investments 176,385,349 123,760,320
Unconditional promises to give, net 8,381,433 8,160,296 5,329,213
Contributions receivable from remainder trusts 4,083,169
Accounts receivable 460,369
Funds held in trust 207,296
Accrued income receivable 41,461 239,969
Prepaid expenses 119,688
Miscellaneous receivables 244,069
Total current assets 18,872,304 197,745,277 170,583,088
Property and equipment
Building 549,641
Furniture and equipment 650,324 406,646
Leasehold interest — building 3,750,483
Vehicle 8,930
4,409,737 956,287
Less: allowance for depreciation (305,078) (330,019)
Total property and equipment 4,104,659 626,268
Other assets
Investments 127,941,398 52,310,810
Unconditional promises to give,net 18,435,542 10,242,668
Restricted cash 3,474,660 62,080
Split-interest agreements 1,518,748
Restricted investments 545,182
Real estate interests held for investment 49,500
Student loans receivable 48,049
Cash surrender value of life insurance 2,073,802 392,632
Total other assets 151,419,848 2,073,802 63,601,421
Total assets $174,396,811 $199,819,079 $234,810,777
L i a b i l i t i e s a n d Ne t As s e t s
Current liabilites
Accounts payable $296,394 $405,640
Annuities payable $117,367
Accrued expenses 152,494 291,660
Total current liabilities 448,888 117,367 697,300
Long-term debt 2,100,000
Total other liabilities 2,100,000
Total liabilities 2,548,888 117,367 697,300
Net assets
Unrestricted 15,592,993 13,033,948
Temporarily restricted 84,768,974 108,021,706 168,768,719
Permanently restricted 71,485,956 91,680,006 52,310,810
Total net assets 171,847,923 199,701,712 234,113,477
Total liabilities and net assets $174,396,811 $199,819,079 $234,810,777
s tat ement of financial posit ion J u n e 3 0 , 2 0 0 7
component uni t s
UNC-CH AR T S AND SCIENCES THE ED UCAT IONAL FOU NDAT IO N T HE MEDICAL FOU NDAT ION
FOU NDAT ION, INC. SCHOLARSHIP ENDOWMENT TRUST O F NOR TH CAROLINA, INC.
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 4 3
f i n a n c i a l
s tat ement of a c t ivit ies
and changes i n n e t a se t s F o r t h e f i s c a l y e a r e n d e d J u n e 3 0 , 2 0 0 7
The accompanying notes to the financial
statements are an integral part of this statement.
Support a n d Revenue
Support
Contributions $21,448,195 $10,400,567 $19,294,750
Development assessment fee 1,575,000
Change in value of split-interest agreements 185,590
Donated facilities 40,000
Actuarial adjustment of annuities payable 70,501
Endowment investment return
designated for current operations 6,202,071
Total support 23,248,785 16,673,139 19,294,750
Revenue
Interest and dividend income 9,072,890
Net unrealized and realized gains
(losses) on investments 21,515,964 23,363,640
Investment income 3,586,033
Gain on sale of real estate investments 18,120
Loss on sale of property and equipment (7,084)
Other income 22,375 785,444
Total revenue 25,124,372 33,233,010
Total support and revenue 48,373,157 16,673,139 52,527,760
Expenses
Program services
Grants 8,281,289 15,409,135
Scholarship expense distribution 6,190,200
Annuity payments 11,871
Other expenses 234,300
Total program services 8,281,289 6,436,371 15,409,135
Supporting services
Fundraising expenses 2,027,874 1,360,198
Management and general 911,092 1,364,698
Total supporting services 2,938,966 2,724,896
Total expenses 11,220,255 6,436,371 18,134,031
Change in net assets from operations 37,152,902 10,236,768 34,393,729
transfers
Transfers to UNC-CH Foundation (356,669)
Ot h e r changes
Investment return in excess of amounts
designated for current operations 27,533,904
Changes in net assets 36,796,233 37,770,672 34,393,729
Net assets — beginning of year 134,442,602 161,931,040 200,814,685
Prior period adjustment 609,088 (1,094,937)
Net assets — beginning of year as restated 135,051,690 161,931,040 199,719,748
Net assets — end of year $171,847,923 $199,701,712 $234,113,477
component uni t s
UNC-CH AR T S AND SCIENCES THE ED UCAT IONAL FOU NDAT IO N T HE MEDICAL FOU NDAT ION
FOU NDAT ION, INC. SCHOLARSHIP ENDOWMENT TRUST O F NOR TH CAROLINA, INC.
4 4 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
if ni nt ar on dc iuaclt o r y
45 NOTE 1 Significant Accounting Policies
A Financial Reporting Entity
B Basis of Presentation
C Basis of Accounting
D Cash and Cash Equivalents
E Investments
F Receivables
G Inventories
H Capital Assets
I Restricted Assets
J Funds Held in Trust for Pool Participants
K Funds Held in Trust by Others
L Non-current Long-term Liabilities
M Compensated Absences
N Net Assets
O Scholarship Discounts
P Revenue and Expense Recognition
Q Internal Sales Activities
R Related Parties
50 NOTE 2 Deposits and Investments
A Deposits
B Investments
56 NOTE 3 Endowment Investment Return
57 NOTE 4 Receivables
58 NOTE 5 Capital Assets
58 NOTE 6 Accounts Payable and Accrued Liabilities
58 NOTE 7 Short-term Debt
Index
59 NOTE 8 Long-term Liabilities
A Changes in Long-term Liabilities
B Bonds Payable
C Demand Bonds
D Capital Appreciation Bonds
E Annual Requirements
F Bond Defeasance
G Notes Payable
H Annuities Payable
65 NOTE 9 Lease Ob l igations
A Capital Lease Obligations
B Operating Lease Obligations
C Other Lease Obligations
65 NOTE 10 Restricted Net Assets
66 NOTE 11 Revenues
66 NOTE 12 Operating Expenses by Function
67 NOTE 13 Pension Plans
A Retirement Plans
B Deferred Compensation and
Supplemental Retirement Income Plans
68 NOTE 14 Other Post-Employment Benefits
A Heath Care for Long-term Disability
Beneficiaries and Retirees
B Disability Income
68 NOTE 15 Risk Management
70 NOTE 16 Commitments and Contingencies
A Commitments
B Pending Litigations and Claims
C Other Contingent Receivables
71 NOTE 17 Rel a ted Parties
71 NOTE 18 Subsequent Events
notes to the
financial statements June 30, 2007 07
Index
2 0 0 7 Co m p r e h e n s i v e a n n u a l f i n a n c i a l r e p o r t 4 5
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
A Financial Reporting Entity
The concept underlying the definition of the financial
reporting entity is that elected officials are accountable to
their constituents for their actions. As required by account-ing
principles generally accepted in the United States of
America, the financial reporting entity includes both the
primary government and all of its component units. An
organization other than a primary government serves as a
nucleus for a reporting entity when it issues separate financial
statements. The University of North Carolina at Chapel Hill
(University) is a constituent institution of the multi-campus
University of North Carolina System, which is a component
unit of the State of North Carolina and an integral part of
the State’s Comprehensive Annual Financial Report.
The accompanying financial statements present all funds
belonging to the University and its component units. While
the Board of Governors of the University of North Carolina
System has ultimate responsibility, the chancellor, the Board
of Trustees, and the Board of Trustees of the Endowment
Fund have delegated responsibilities for financial account-ability
of the University’s funds. The University’s component
units are either blended or discretely presented in the
University’s financial statements. The blended component
units, although legally separate, are, in substance, part of the
University’s operations and therefore, are reported as if they
were part of the University. Discretely presented component
units’ financial data are reported in separate financial
statements because of their use of different GAAP reporting
models and to emphasize their legal separateness.
Blended Component Units Although legally separate,
The University of North Carolina at Chapel Hill Foundation
Investment Fund, Inc. (Investment Fund), UNC Investment
Fund, LLC (System Fund), UNC Management Company,
Inc. (Management Company), The University of North
Carolina at Chapel Hill Foundation, Inc. (UNC-Chapel Hill
Foundation), The Kenan-Flagler Business School Founda-tion
(Business School Foundation), The School of Social
Work Foundation, Inc. (Social Work Foundation), U.N.C.
Law Foundation, Inc. (Law Foundation), and The University
of North Carolina at Chapel Hill School of Education
Foundation, Inc. (School of Education Foundation), are
reported as if they were part of the University.
The Investment Fund is governed by a board consisting
of 11 ex-officio directors and one or two elected directors.
Ex-officio directors include all of the members of the Board
of Trustees of the Endowment Fund of the University, the
vice chancellor for finance and administration, and the vice
chancellor for university advancement. The UNC-Chapel
Hill Foundation Board may, in its discretion, elect one or
two of its at-large members to the Investment Fund Board.
The Investment Fund supports the University by operating
an investment fund for charitable, non-profit foundations,
associations, trusts, endowments, and funds that are
organized and operated primarily to support the University.
Because members of the Board of Directors of the Invest-ment
Fund are officials or appointed by officials of the
University and the Investment Fund’s primary purpose is
to benefit the University and other organizations operated
primarily to support the University, its financial statements
have been blended with those of the University.
The System Fund was organized by the Investment Fund
to allow the University, the University of North Carolina
and its other constituent institutions (UNC System), affili-ated
foundations, associations, trusts, and endowments that
support the University and the UNC System, to pool their
resources and invest collectively in investment opportuni-ties
identified, structured and arranged by the Management
Company. The membership interests are offered only to gov-ernment
entities or tax-exempt organizations that are con-trolled
by or support the University or UNC System. The
Investment Fund contributed and assigned all of its assets
to the System Fund effective January 1, 2003, in exchange
for its membership interest in the System Fund. Upon such
contribution and assignment, and in consideration thereof,
the System Fund has assumed all liabilities and obligations
of the Investment Fund in respect of such contributed as-sets.
At June 30, 2007, the Investment Fund membership
interest was approximately 91.8 percent of the System Fund
total membership interests. Because the Investment Fund
is the organizer and a predominant member of the System
Fund, the financial statements of the System Fund have
been blended with those of the University.
The Management Company is a North Carolina
non-profit corporation organized and operated exclusively
to support the educational mission of the University. The
Management Company provides investment management
services to the University, UNC System, and institutions
and affiliated tax-exempt organizations, and performs other
functions for and generally carries out the purposes of the
University. The Management Company is governed by five
ex-officio directors and one or two additional directors as
fixed or changed from time to time by the board, elected
by the ex-officio directors. The ex-officio directors consist
of the chancellor of the University, the vice chancellor for
finance and administration of the University, the chairman
of the University’s Board of Trustees, the chairman of the
Board of Directors of the Investment Fund, and the
president of the Management Company. Because members
of the Board of Directors of the Management Company are
officials or appointed by officials of the University and the
Management Company’s primary purpose is to benefit the
University and other organizations operated primarily to
4 6 T h e U n i v e r s i t y of Nor t h C a rol i n a at C h a p e l H i l l
support the University, its financial statements have been
blended with those of the University.
The UNC-Chapel Hill Foundation is governed by a
17-member board consisting of nine ex-officio directors and
eight elected directors. Ex-officio directors include the
chairman of the University Board of Trustees, the chancellor,
the vice chancellor for finance and administration, and the
vice chancellor for university advancement (non-voting). In
addition, the Board of Trustees elects two ex-officio direc-tors
from among its own members as well as three ex-officio
directors from the Board of Trustees of the Endowment
Fund who have not otherwise been selected. The eight
remaining directors are elected as members of the UNC-Chapel
Hill Foundation Board of Directors by action of the
ex-officio directors. The UNC-Chapel Hill Foundation aids,
supports, and promotes teaching, research, and service in
the various educational, scientific, scholarly, professional,
artistic, and creative endeavors of the University. Because
members of the Board of Directors of the UNC-Chapel
Hill Foundation are officials or appointed by officials of
the University and the UNC-Chapel Hill Foundation’s sole
purpose is to benefit the University, its financial statements
have been blended with those of the University.
The Business School Foundation is governed by a board
consisting of four ex-officio directors and four or more
elected directors. Ex-officio directors include the dean of the
Kenan-Flagler Business School (Business School), as well as
the school’s chief financial officer, associate dean of academic
affairs, and associate dean for MBA Programs. The remain-ing
directors are elected to the Business School Foundation
Board of Directors by action of the ex-officio directors. The
Business School Foundation aids, promotes, and supports
the Kenan-Flagler Business School at the University. Because
members of the Board of Directors of the Business School
Foundation are officials or appointed by officials of the
University, the financial statements of the Business School
Foundation have been blended with those of the University.
The Social Work Foundation is governed by a board con-sisting
of two ex-officio directors and eight elected directors.
Ex-officio directors include the dean of the School of Social
Work and the chairman of the school’s Board of Advisors.
The remaining eight directors are elected to the Social Work
Foundation Board of Directors by action of a majority of
board members. The remaining eight directors as of June 30,
2007, were elected by the ex-officio directors based on foun-dation
bylaws in effect prior to 2006–07. The Social Work
Foundation fosters and promotes the growth, progress, and
general welfare of social work practice and research at the
School of Social Work of the University. Because members
of the Board of Directors of the Social Work Foundation
are officials or appointed by officials of the University, the
financial statements of the Social Work Foundation have
been blended with those of the University.
The Law Foundation is governed by a board consisting
of one ex-officio director, six appointed directors, and six
elected directors. The ex-officio director is the dean of the
School of Law of the University. The ex-officio director
appoints six directors and the Board of Directors of the Law
Alumni Association of the UNC, Inc. elects the other six
directors. The Law Foundation provides su